Posted at 2:44 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

The CCI (Continuous Commodity Index) bounced from near the 50% retracement level of its move up from the December low as money flooded back into the commodity sector after that same money flooded out of it yesterday. The idiocy and madness continues unabated it seems. Trying to read too much into any one day’s price action has become the sport of fools so let’s not get snared in that net. Rather let’s try to use the longer term charts to see if we can see how the battle between the deflationists and the inflationists is faring.

Obviously with crude oil and copper soaring, gold was not going to stay down today, and with the equities continuing their orchestrated low volume move higher, the good times were here again in the minds of the hedgies, or better yet, their trading algorithms which were busy jettisoning everything that looked remotely like a commodity yesterday.

The grain pits, led by the soybean market, tore higher today as news of Chinese buying set a fire under those markets. When you get a combination of the energy markets (crude and natural gas) moving higher alongside the grains, you are not going to get serious selling pressure in gold outside of the bullion banks as nearly all of the spec funds will be buying.

I marvel at the copper market which is flirting once again with its highs made just a few days ago having quickly shrugged off the weakness of the past two days. It is difficult to argue with the trend in there but it sure makes once wonder if that market either knows something that the rest of us do not or if it is beginning to get ahead of itself.

Bonds – well, they are becoming almost completely unpredictable… down sharply at one point on the surging commodity markets and higher equities only to miraculously come soaring back after news that the auction on 7 years went very well (at least that is what we are supposed to believe). Apparently some feel that yields are at decent levels and want to own them but who really knows what games are being played in that market behind the scenes. There is simply way too much government intervention in the bonds with QA buys and such taking place to know how strong demand really is.

Gold managed to climb back above support down near the $932-$930 level which gave way yesterday. That is a good sign but I will not rest easier until price gets back above $940 and remains there. Only then can one say that the bears’ advantage has been lost. For now, $930 is a key support level that must remain intact to keep price from dropping down below $920. Only a climb back above $950 turns the tide in the favor of the bulls.

Open interest shows that the longs are indeed being forced out in gold with bullion bank short covering occurring.

That’s it for today as I have to keep things rather abbreviated.

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

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Posted at 9:31 PM (CST) by & filed under In The News.

Dear CIGAs,

Goldman is out there doing the public a service again by making a bear recommendation on the Euro at the exact same time as the US 5 year bond issues went begging.

I imagine that Goldman is a large short in the Euro, so why wouldn’t they talk it down if they could?

 

Jim Sinclair’s Commentary

Exactly as it occurred in the 70s, exactly as I told you it would occur in 2008-2012

"However, with bullion an increasingly attractive portfolio diversifier for central banks after a period of instability in the currency markets, fewer are selling gold, while talk emerged earlier this year of Asian banks considering new purchases."

Cenbank sales under gold pact well below limit: WGC
By Jan Harvey

LONDON (Reuters) – Official sector gold sales under the Central Bank Gold Agreement (CBGA) have totalled only 140 tonnes so far in the pact’s final year, well short of the maximum 500 tonnes allowed, the World Gold Council said.

France and Sweden are the two principal remaining sellers, the WGC said in an emailed statement on Wednesday, although the possibility exists for a further sale by the European Central Bank.

The 15 signatories of the pact, which also include the central banks of Spain, Germany and Italy, agreed in 2004 to limit gold sales to the market to 500 tonnes in any one year.

"With 140 tonnes of sales, according to our numbers, it looks like we have had over 100 tonnes less than was sold over the same period of last year," said Barclays Capital analyst Suki Cooper.

"Given the current pace, it is likely this is going to be the lowest annual sales-per-quota year since the start of the very first agreement."

The first CBGA was signed in 1999, and limited sales to 400 tonnes per year to avoid flooding the market with bullion and consequently destabilising the gold price.

More…

Jim Sinclair’s Commentary

Interested in buying Hartford or Albany?

I hear that someone is shopping an Alt A mortgage application on a large, historic and old white house in Washington.

State may sell Capitol buildings, others
Under GOP plan, government would pay to lease back most of the sites
by Matthew Benson and JJ Hensley – Jul. 29, 2009 12:00 AM
The Arizona Republic

Call it a sign of desperate times: Legislators are considering selling the House and Senate buildings where they’ve conducted state business for more than 50 years.

Dozens of other state properties also may be sold as the state government faces its worst financial crisis in a generation, if not ever. The plan isn’t to liquidate state assets, though.

Instead, officials hope to sell the properties and then lease them back over several years before assuming ownership again. The complex financial transaction would allow government services to continue without interruption while giving the state a fast infusion of as much as $735 million, according to Capitol projections.

For investors, the arrangement means long-term lease payments from a stable source.

Once any deals are approved, money could begin flowing into state coffers in as little as 90 days.

The plan has bipartisan backing, but that doesn’t make the prospect of paying rent for buildings once owned free and clear by taxpayers any easier to swallow.

"We’ve mortgaged the legislative halls," said an exasperated state Rep. Steve Yarbrough, a Chandler Republican. "That just tells you how extraordinary the times are.

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Jim Sinclair’s Commentary

Here is a video of Rick Santelli today reporting on the 5 year US Treasury auction:


 

Jim Sinclair’s Commentary

Polls are a politician’s sustenance If this is a crack in the armor then it has serious ramifications for a MOPE based Administration.

Poll Shows Obama’s Clout on Health Care Is Eroding
Wednesday, July 29, 2009 — 6:52 PM ET

President Obama’s ability to shape the debate on health care appears to be eroding as opponents aggressively portray the effort as a government-takeover that could limit Americans’

ability to chose their doctor and course of treatment, according to the latest New York Times/CBS News poll.

Americans are concerned that overhauling the health care system would reduce the quality of their care, increase their out-of-pocket health costs and tax bills and limit their options in choosing doctors, treatment and tests, the poll found.

More…

Jim Sinclair’s Commentary

Let’s see if the true believers in MOPE can spin this problem away.

California pensions next state financial crisis
Wed Jul 29, 2009 5:01pm EDT
By Jim Christie – Analysis

SAN FRANCISCO (Reuters) – On the heels of closing a $24 billion state budget deficit, California faces new financial trouble — from its public pensions.

The loss incurred by California’s biggest pension fund in the last year is more than half the size of the state’s spending plan, and financial analysts say the market on its own will keep the pension hole open for years or longer, a challenge public pension funds across the United States will also face.

"Pensions will be a major issue, sooner more likely than later, because they’re going to bankrupt many jurisdictions," said Bob Stern of the Center for Governmental Studies in Los Angeles.

Governor Arnold Schwarzenegger on Saturday in a radio address put the California Public Employees’ Retirement System, the biggest U.S. public pension fund that is best known as Calpers, on notice that its cost to the state government is in his sights.

"In these challenging economic times, we cannot afford everything we have funded in the past," he said. "And we will take on pension reform to cut down on unfunded liabilities and save the state billions of dollars."

By Monday, Calpers officials were discussing how to respond to Schwarzenegger — and others who may take aim at the fund.

More…

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Jim Sinclair’s Commentary

This is total nonsense when it comes to the gold market. It will never see the marketplace. This is purely spin for the shorts.

In the 70s this was the singular most bullish event as it allowed huge buyers in at one price.

With a planetary desire to diversify out of the dollar not changed in any way by three days of intervention and algorithm follow through trading how can you fall for this?

clip_image002IMF to sell gold within central bank pact-official
07.29.09, 12:42 PM EDT

WASHINGTON (Reuters) – The planned sale of 400 tonnes of IMF gold would take place within a new central bank gold sales agreement being negotiated, a senior International Monetary Fund official said Wednesday.

The IMF has provisionally agreed to sell the gold to raise resources for increased lending to poor countries. A final decision by all 186 IMF member countries on the sales is expected by IMF meetings in Istanbul in October and requires the support of 85 percent of the membership.

"We have committed as part of our new income model to have that gold sale, if done on the markets, to be done through the central bank sales mechanism," said Reza Moghadam, director of the IMF’s Strategy, Policy and Review Department.

Moghadam told a conference call the sales would take place through the central bank mechanism "all the time" and could take two to three years.

He said he hoped negotiations on the new Central Bank Gold Sales Agreement will also be finalized by October. The current 5-year agreement expires in September

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Jim Sinclair’s Commentary

This is so dollar negative it is hard to get worse.

What would be worse is 10 and 30 year bonds begging for buyers.

Now you see why it is QE to infinity or the Fed is toast, compliments of the legislative at the behest of the Administration.

Weak U.S. 5-year debt auction raises worries
Wed Jul 29, 2009 1:52pm EDT

NEW YORK, July 29 (Reuters) – The U.S. Treasury sold $39 billion in five-year debt on Wednesday in an auction that drew poor demand, raising worries over the cost of financing the government’s burgeoning budget deficit.

Demand overall was below average, measured by the bid-to-cover ratio of 1.92, the weakest in almost a year.

In a further sign of weakness, yields at the auction were well above expectations, known as a "tail" by market participants.

A key proxy for foreign interest, the indirect bidder category, was slightly above the average of auctions over the past year at 36.6 percent but far below the most recent sale.

"It was just a horrendous result," William O’Donnell, head of U.S. Treasury strategy at RBS Securities in Greenwich Connecticut, said about the auction.

"It was the weakest bid-to-cover since September 2008, and by my numbers it was the biggest tail since February 1993. It was just a very, very weak result."

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Jim Sinclair’s Commentary

Maybe they can talk this problem away.

California Can’t Stop IOUs Just Yet, State Controller Says
By Michael B. Marois

July 29 (Bloomberg) — California must continue paying some obligations with IOUs for at least another week while officials crunch numbers to see if a budget revision signed by Governor Arnold Schwarzenegger puts enough cash into state coffers.

Democratic Controller John Chiang’s office said he will determine when the IOUs will stop once he has received updated revenue projections from Schwarzenegger’s finance department, expected sometime next week, Deputy Controller Hallye Jordan said in telephone interview today. Schwarzenegger, a Republican, yesterday signed a revised $84.5 billion budget that lawmakers sent him July 24.

California, whose economy is the eighth-largest in the world, begin giving out IOUs on July 2 for only the second time since the Great Depression for everything from tax refunds to services and goods, after Schwarzenegger and lawmakers deadlocked over how to close a resurgent deficit that left the state without enough cash.

“It’s not going to happen overnight,” Schwarzenegger told reporters in his Sacramento office yesterday after he signed the revision.

Since July 2, Chiang has issued more than 200,000 of the IOUs worth $1.08 billion. The so-called registered warrants, mature in October and pay an annualized interest rate of 3.75 percent. The state has the authority to repay early if the money is available.

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Jim Sinclair’s Commentary

One out of ten put of work by OTC derivatives and we all subsidize the Banksters?

Where is the public outrage? God help us all.

Out of the TARP, But Still on the Dole
Posted by Mark A. Calabria

While banks such as Goldman and J.P. Morgan have managed to find a way to re-pay the capital injections made under the TARP bailout, their reliance on public subsidies is far from over. The federal government, via a debt guarantee program run by the FDIC, is still putting considerable taxpayer funds at risk on behalf of the banking industry.  The Wall Street Journal estimates that banks participating in the FDIC debt guarantee program will save about $24 billion in reduced borrowing costs of the next three years. The Journal estimates that Goldman alone will save over $2 billion on its borrowing costs due to the FDIC’s guarantees.

One of the conditions imposed by the Treasury department for allowing banks to leave the TARP was that such banks be able to issue debt not guaranteed by the government.  Apparently this requirement did not apply to all of a firm’s debt issues.  These banks should be expected to issue all their debt without a government guarantee and be required to pay back any currently outstanding government guaranteed debt.

To add insult to injury, not only are banks reaping huge subsidies from the FDIC debt guarantee program, but the program itself is likely illegal.  The FDIC’s authority to take special actions on behalf of a failing ”systemically” important bank is limited to a bank-by-bank review.  The FDIC’s actions over the last several months to declare the entire banking system as systemically important is at best a fanciful reading of the law.

The FDIC should immediately terminate this illegal program and end the continuing string of subsidies going to Wall Street banks, many of which are reporting enormous profits.

More…

 

Jim Sinclair’s Commentary

Outside of us here, who cares about the average guy?

It is all Banksters, institutions and Fat Cats squashing the backbone of a nation, the blue collar citizen.

Good news, these guys shuffled paper. Yes, that is what this says.

I am sick to my stomach as I see the news pass in front on my eye. This is worse than when I listen to the F-TV hacks.

U.S. Banks Dodge Regulatory Bullet
By Dana Wiklund , IDG News Service , 07/29/2009

With the results of the government stress tests of the nation largest banks released it would appear that the banking system has dodged a regulatory bullet in terms of a potential need for massive new infusions of equity capital. What does this mean for the banking system and providers of technology to financial services?

The U.S. banking system has dodged a bullet. As the government has completed its stress testing of the nation’s top 19 (why not 20?) institutions, the capital adequacy of a few of the nation’s top banks have been called into question while many others have been deemed healthy — for the moment. What is the significance of these tests? Government regulators have for each bank simulated baseline and worst case scenarios for further deterioration in asset quality — the value of assets with each institution. The worst case scenario was very severe simulating economic conditions rivaling the great depression.

Regulators have drawn a line in the sand indicating which banks need additional equity capital to offset potential future devaluations in consumer, commercial or derivative assets. This is preventative medicine to ward off a future solvency crisis which would further aggravate global systemic risk, the risk of the global financial system freezing up with risk aversion. Banks need to lend to one another, lend to businesses and lend to consumers if the domestic and global economies are to turn a corner towards a return to modest growth over the next 18 months and in order for that to happen, relative stability and transparency regarding solvency risk with our largest banks is critical. Analysis, transparency and capital adequacy leads to improved market confidence.

The good news in these stress tests is that regulators feel that institutions will be able to raise additional equity either by re-jiggering of their capital structures by converting preferred stock or by raising additional common equity in the capital markets without the government directly infusing cash or taking equity positions in the banks.

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Jim Sinclair’s Commentary

I have said and will say again that the Federal Reserve has no practical tools whatsoever to be able to drain the massive increase in international liquidity regardless of the loud claims to have everything always under control.

Take a look at the Asian view on this subject.

No escape for Fed
By Hossein Askari and Noureddine Krichene

In contrast to Federal Reserve chairman Ben Bernanke’s testimony last week, we cannot see a safe "exit strategy" for the Fed from its current loose monetary policy. Bernanke’s ambivalent testimony of a safe exit strategy can only heighten uncertainty and exacerbate instabilities. Let’s explain.

In his recent testimony on July 21 before the Committee on Financial Services of the House of Representatives, Bernanke was felicitous that aggressive money policy had averted the collapse of the financial system. However, he omitted to say that the same policy had failed to avert a collapse of real gross domestic product (GDP) and private investment and rising unemployment.

The economic recession continues despite interest rates being near-zero, money supply rising at 22% a year, unprecedented stimuli packages, and record fiscal deficits reaching 13% of GDP in 2009. Bernanke and President Barack Obama’s team had clearly believed that a combination of aggressive money and fiscal policies would secure the return to full-employment and quickly. After all, Larry Summers had predicted the unemployment cresting at about 8%. These expectations were standard Keynesian predictions that have proven to be substantially off the mark.

As clearly implied by Bernanke himself, this policy has so far been self-defeating: "Aggressive policy actions taken around the world last fall may well have averted the collapse of the global financial system, an event that would have had extremely adverse and protracted consequences for the world economy. Even so, the financial shocks that hit the global economy in September and October were the worst since the 1930s, and they helped push the global economy into the deepest recession since World War II.

"The US economy contracted sharply in the fourth quarter of last year and the first quarter of this year. More recently, the pace of decline appears to have slowed significantly, and final demand and production have shown tentative signs of stabilization. The labor market, however, has continued to weaken."

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Jim Sinclair’s Commentary

This is very modest progress on short seller’s tactics.

SEC Sticks With Patchwork Fix For Naked Shorts
Liz Moyer, 07.27.09, 04:20 PM EDT

Regulator makes permanent an emergency rule that requires brokers to promptly buy or borrow security to deliver.

The markets will still have to wait for stricter rules to stop abusive short-selling.

On Monday, the Securities and Exchange Commission made a temporary emergency rule permanent that requires brokers to promptly buy or borrow securities to deliver on a short sale. But the agency stopped short of deciding on other hot issues, including the resurrection of the so-called uptick rule and circuit breaker restrictions. Instead, it said merely it would hold a hearing at the end of September.

That adds further delay to resolving a long-running debate at the agency and in the markets about whether existing rules are adequate to prevent abusive short-selling, whether those rules are being properly enforced and whether additional safeguards are needed.

The now permanent rule, which requires brokers to promptly buy or borrow a security to deliver, would have expired on Friday. It is aimed at stopping "naked" short-selling, where a trader doesn’t borrow or properly locate a stock before selling it, potentially allowing them to drive the price of the stock lower regardless of the supply/demand for the issue. The rule cleans up trades after the fact by ensuring that the stock is delivered to the buyer, closing out a failure to deliver. A great quantity of failures to deliver in any one stock can be a sign of abusive trading.

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Jim Sinclair’s Commentary

Exactly what will the military be doing? This is a CNN report.

Military planning for possible H1N1 outbreak
10:20 p.m. EDT, Tue July 28, 2009

WASHINGTON (CNN) — The U.S. military wants to establish regional teams of military personnel to assist civilian authorities in the event of a significant outbreak of the H1N1 virus this fall, according to Defense Department officials.

The proposal is awaiting final approval from Defense Secretary Robert Gates.

The officials would not be identified because the proposal from U.S. Northern Command’s Gen. Victor Renuart has not been approved by the secretary.

The plan calls for military task forces to work in conjunction with the Federal Emergency Management Agency. There is no final decision on how the military effort would be manned, but one source said it would likely include personnel from all branches of the military.

It has yet to be determined how many troops would be needed and whether they would come from the active duty or the National Guard and Reserve forces.

Civilian authorities would lead any relief efforts in the event of a major outbreak, the official said. The military, as they would for a natural disaster or other significant emergency situation, could provide support and fulfill any tasks that civilian authorities could not, such as air transport or testing of large numbers of viral samples from infected patients.

More…

Jim Sinclair’s Commentary

QE to infinity or the Federal Reserve into the round file, that is what this present game is all about.

Expect new legislation limiting the Fed’s power as part of transmuting the Fed into a financial police station.

Volcker won it all and Greenspan gave it all back plus more. Bernanke may well Chair the Fed out of business.

Gallup Poll: Americans Turning Against Federal Reserve

Opinions souring as efforts to audit the Fed gain momentum

As momentum builds for Ron Paul’s efforts to audit the Fed, a new Gallup poll shows that Americans are turning against the Federal Reserve, with just 30 per cent saying the agency is doing a good job.

35 per cent rate the job the Fed is doing as "only fair" and 22 per cent say it is doing a "poor" job.

The contrast compared with when the question was last asked in 2003 is clear. Six years ago, just 5 per cent thought the Fed was doing a "poor" job, while 53% thought it was doing a "good/excellent" job.

The Fed is bottom of the pile when compared to the ratings received by other agencies in the poll (we hesitate to call the Fed a "government agency" because it isn’t). The IRS and the FDA are the other two least popular agencies.

According to Gallup editor in chief Dr. Frank Newport, "Americans are blaming to some degree the actions or inactions of the Federal Reserve board" for the economic turmoil.

More…

 

Jim Sinclair’s Commentary

Here is an interesting review of the DTCC system that asks a most interesting question.

However if you believe in MOPE, why worry?

Who Really Owns Your Stocks? Hint: It’s Not You

So, do you think you own the stocks you’ve bought?

Think again.

For those of you who have not heard of the Depository Trust & Clearing Corp. (DTCC) and you own stocks … sit down.  This might change your your whole way of thinking.

Who is the DTCC and what does it do?  The DTCC actually provides clearing for 3.5 million securities from the United States and, get this, from 110 other countries and territories as well — all valued at roughly $28 trillion.  In 2008 alone, the DTCC settled more than $1.88 quadrillion in securities transactions.

The DTCC is also the registered owner and holder of your stock.

At present, the DTCC holds $23 trillion in assets.  It has a virtual monopoly on clearing.  In fact, 99% of all stocks in the USA are legally owned by it.

When Was the Last Time You Saw a Stock Certificate?

Remember the good old days when you bought a stock and received a certificate for it?  The SEC changed that law and went from stock certificates for individual investors to, well, your broker holding the certificate for you so that he or she will be able to legally trade it on your behalf.

The stock certificates were issued in the name of the brokerage … remember, just so they could trade them for you.  In reality, you became the beneficiary of the stocks you bought rather than the owner.

But the SEC, out of the goodness of its heart, changed the laws again, so that now the brokers can’t have the stocks in their name. Instead, the stocks must be placed in the name of "Cede & Co."

The excuse you’ll hear from your broker is that it is just a fictitious name used by the brokerage so it can trade your stocks for you because brokerages can’t, by law, put the stock certificates in their name any longer.

To Whom, Exactly, Have You ‘Ceded’ Your Stocks?

What we have now suddenly all come to find out is the Cede & Co is actually not a fictitious name, but a subsidiary company of DTCC.  In essence, DTCC owns probably 99% of all the stocks in the entire world.

This is how it works.  You buy some shares of stock at your brokerage.  Your broker tells you that, in order to do business on your behalf, you must give the brokerage power of attorney to buy and sell.

Therefore, your stock purchases are placed in a "street name" because, according to the SEC, no brokerage can place a stock in its own name.  The brokerage then notifies the DTCC of the transaction.

The DTCC is a banking trust company and, by SEC regulation, cannot own shares in its own name, either.  So it transfers the certificates to its subsidiary, Cede & Co.

What do you own?

How about nothing?

And now you are not even the beneficiary.  The brokerage is technically the beneficiary.  You are twice removed!

Guess Who’s Also Behind the Mortgage Mess

Recently, DTCC presented testimony before the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.  The hearing was on "Effective Regulation of the Over-the-Counter Derivatives Markets," just a couple of weeks ago, and the transcripts were just released.

The subcommittee is attempting to find out how mortgages could come to be packaged and then sold, and then re-packaged and resold many times over.  Since DTCC owns 99% of all derivatives, it seems only fair that it would be called to give testimony.

Larry Thompson, general counsel for DTCC, applauded the good works of the DTCC.  In his opening statement, he said, "Now, many of you may not have heard of DTCC before. That’s purposeful. We have traditionally kept a low profile, given the critical nature of the role we play in U.S. financial markets."   (Dah … who would have guessed?)

In truth, DTCC knew all about the Collateralized Debt Obligation (CDO) markets, who owned what, how often the same collateral was used and repackaged, etc.  Why?  Because they own it all.

DTCC created a massive computer warehouse and keeps records of all CDO trades, all stock transactions, all derivatives, etc.  It has a monopoly on clearing.  And to justify its great job, Thompson added to his testimony.

"I’d submit to you Mr. Chairman, and Members of the Subcommittee, that had DTCC not had the foresight to create this Trade Information Warehouse and load the Warehouse with all these records of CDS trades in 2007, we might still be sitting here today in 2009 trying to sort out the total exposure of trading obligations following the Lehman bankruptcy, i.e., who traded with whom, at what point in time and at what price?”

Next time you are in the market to buy stocks, trade futures.  You’re only in the trade for four minutes or less.  Not enough time for Cede & Co. to get their mitts on your money. …

Barbara Cohen
Contributing Editor
The Tycoon Report

Posted at 2:26 PM (CST) by & filed under General Editorial.

Dear Friends,

Let’s keep the last three days simple.

You either like gold, or you like the dollar.

That is all there is to it.

Respectfully yours,
Jim

Posted at 2:20 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

In what is a continuation of yesterday’s deflationary trade, the US Dollar moved sharply higher today with crude oil getting whacked along with most of the rest of the commodity complex, including ol’ Dr. Copper. That allowed for further long liquidation in gold which as those of you who follow this site regularly understand, always tends to occur during rollover week as funds move positions out of the front month to avoid delivery issues. The perma bears generally tend to time their gold takedowns in association with these rollovers – no surprise there.

Open interest readings reveal sizeable long liquidation occurred in yesterday’s sharp plunge lower in gold. The recent Commitment of Traders report has shown the momentum following trading funds with a rather large net long position which caught the attention of the predatory bullion banks who dug in their heels above $958, sucked up all the bids and then rammed the market lower after which they stepped aside and let the computerized black boxes of the funds do their work for them as they are now covering those shorts put on above $955.

The only way to short circuit this rather simpleminded strategy of the bullion banks is for some of the big funds to simply stand for delivery and insist on taking the gold out of the warehouse but no matter how often we lay out a clear strategy for victory over the Comex gold goons, the hedgies simply cannot bring themselves to taking the necessary steps to prevent their own plundering at the hands of the bullion banks.

Open interest is shifting to the December contract which is now 4 times that of the August.

With the short term technicals having now turned in favor of the gold bears, the market will need to find support near the next level of $920. Failure there and it is back down below $910. Resistance is now $940 on the topside.

It appears that the fundamentals of large supplies in inventory are taking crude lower and when coupled with the stronger US Dollar, is resulting in a buyer’s strike across the entire commodity complex. That has taken the CCI (Continuous Commodity Index) down near its 50 week moving average on the price charts which is also quite close to the 50% Fibonacci retracement level from last December’s low to this June’s high. One has to think that if the inflation argument is winning, the commodity complex will find buying support rather soon. If not, we could drift down to near 380 on that index which I suspect will see a large amount of index fund money making its way back into these markets.

Once again the bond market is trading in an extremely erratic fashion. Early in the session it was the recipient of safe haven flows on the heels of the lousy durable goods number and the weaker stock indices. Additionally, the Fed was in there buying $3 billion worth of bonds as part of their Quantitative Easing program. As soon as that buying was over, the bonds began drifiting well off their highs and were stabilizing there until the results of the $39 billion auction of 5 years became known. They then took a sharp dive as poor demand at the auction raised fears about the massive amount of supply that is coming at the market. Pity the unfortunate mortgage outfit attempting to get a read on this screwed up market so that they can set up some sort of hedging program!

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

July2909Gold1230pmCDT.jpg

Posted at 9:08 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

Oh yes, the meeting today between US and Chinese financial representatives went swimmingly.

Believe that and you are stupid.

China’s Wang: U.S. must manage dollar supply
Tue Jul 28, 2009 10:34am EDT

WASHINGTON (Reuters) – Chinese Vice Premier Wang Qishan on Tuesday urged the United States to carefully manage the impact of the massive fiscal and monetary policy stimulus it has issued to counter a devastating financial crisis and deep economic recession.

"As a major reserve currency-issuing country in the world, the United States should properly balance and properly handle the impact of the dollar supply on the domestic economy and the world economy as a whole," Wang said at a U.S.-China summit.

More…

Jim Sinclair’s Commentary

Yes and I promise you eternal youth, life everlasting free of death and no flu epidemic.

U.S. Assures a ‘Concerned’ China It Will Shrink Record Deficit
By Rob Delaney and Rebecca Christie

July 27 (Bloomberg) — The Obama administration’s economic leaders assured Chinese counterparts they will rein in a record budget deficit as China underscored its concern about preserving the value of its holdings of Treasuries.

“China has a huge amount of investment in the U.S.” and “we are concerned about the security of our financial assets,” Assistant Finance Minister Zhu Guangyao said in a press briefing at the end of the first of two days of talks in Washington. Treasury Secretary Timothy Geithner said in opening remarks that the U.S. will ensure a “sustainable” deficit by 2013.

In a shift from Bush administration meetings, officials indicated little sign of tension over the value of China’s yuan, which U.S. lawmakers have labeled as artificially cheap and an aid to Chinese exports. That may be because the “best idea is just to keep the yuan-dollar rate stable” given U.S. need for Chinese demand for Treasuries, said Ronald McKinnon, a professor of economics at Stanford University.

“The Chinese are trapped with supporting the value of the dollar,” McKinnon said in a telephone interview from Stanford, California. “If they withdrew from the market, there’s a big appreciation” of the yuan as a result that would send China’s exports down, he said.

Record Holdings

The new focus on the deficit and Treasuries reflects the legacy of China’s record trade surpluses and its accumulation of dollars as a result of holding down the yuan. Chinese foreign- exchange reserves surpassed $2 trillion for the first time in the second quarter, and its holdings of Treasuries reached $801.5 billion in May, about 100 percent more than at the start of 2007.

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Jim Sinclair’s Commentary

Judging from all the quasi-business entities and functions the government has run, I would say Chrysler is absolutely correct here.

Chrysler: Washington meddling could kill us
Lawyer testifies before congressional committee of dire consequences of being forced to renew contracts.
By Peter Valdes-Dapena, CNNMoney.com senior writer
Last Updated: July 27, 2009: 1:50 PM ET

NEW YORK (CNNMoney.com) — A Chrysler Group executive, testifying before a congressional committee hearing on Chrysler and General Motors’ auto dealership cuts, warned that being forced to reinstate dealers could force Chrysler out of business.

The House of Representatives recently passed a bill that would require GM and Chrysler to reinstate the contracts of dealers that were recently dropped as part of their separate bankruptcy proceedings.

Louann Van Der Wiele, Chrysler Group general counsel, testified Tuesday before a sub-committee of the House Judiciary Committee. She warned that forcing Chrysler to reinstate the 789 dealer contracts it had left behind in bankruptcy court earlier this year would force "new" Chrysler into bankruptcy again. This time with no buyer to bail the company out.

"Complete liquidation, with all of its dire consequences, could follow," she said, according to a transcript of her testimony.

Auto dealerships are separate businesses from auto manufacturers. Both GM and Chrysler have argued that having too many dealerships has hurt profitability by spreading sales too thinly and forcing dealers to compete with one another.

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Jim Sinclair’s Commentary

Here are more examples of government helping businesses.

Lawsuit Seeks to Block Home Foreclosures in Minn.
By THE ASSOCIATED PRESS
Published: July 28, 2009

MINNEAPOLIS (AP) — A group seeking to stop home foreclosures in Minnesota sued the federal government Tuesday, saying a program meant to help struggling homeowners refinance their mortgages fails to give them proper notice or the right to appeal when they’re rejected.

The Home Affordable Modification Program, set up earlier this year, reduces monthly mortgage payments for at-risk borrowers. The Obama administration has set aside $75 billion for the program to try to prevent 3 million to 4 million foreclosures.

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Jim Sinclair’s Commentary

Next time you see the Verizon ad with the thousands of people representing the walking network behind you, look for cardboard people in the crowd.

Verizon to cut 8,000 employee and contractor jobs, won’t be hiring much until recession ends
By Associated Press
11:19 AM EDT, July 27, 2009

NEW YORK (AP) — Phone company Verizon says it will cut 8,000 jobs from among employees and contractors before the end of the year to keep costs in line as the recession saps demand from businesses for telecommunications services.

Executives said the cuts will come from the wireline side of the business.

In recent years, New York-based Verizon Communications Inc. has balanced layoffs in its wireline business with hiring in wireless, making for a net increase.

But Chief Operating Officer Denny Strigl says that will not be the case this time. He says there will be no large-scale hiring in wireless until the recession is over.

Verizon ended June with 235,000 employees. That doesn’t include contractors.

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Jim Sinclair’s Commentary

You can dress the markets all you want for a day or three, but you cannot fool the Chinese as spokes-nation for all the BRICs.

Such clear and obvious currency market intervention, always known as temporary at best, is actually contra-productive and childish under present circumstances.

I could solve the USA’s problems with the Chinese, conversely China’s problem with the USA, without drastic action, but Geithner would never ask me.

Paul Volcker might. I doubt he has thought about the answer.

U.S. Budget Is Scrutinized by a Big Creditor
By DAVID E. SANGER
July 29, 2009
No sooner had President Obama greeted nearly 200 of the bankers, bureaucrats and policymakers who could make or break his economic plans on Monday than they started grilling his economic team with the hardest questions about his economic strategy.

How long are these huge deficits sustainable, they wanted to know. How long do you keep stimulating the economy, and when do you break for the exits? If the dollar nosedives compared other major currencies, what’s the administration’s Plan B?

The questions were mostly asked in Chinese — by a delegation from Beijing that, diplomatic niceties aside, has come to check in on the investment of more than $1.5 trillion that China has made in United States government-issued securities.

“We are concerned about the security of our financial assets,” China’s assistant finance minister, Zhu Guangyao, said with uncharacteristic bluntness during a briefing for reporters covering the “U.S.-China Strategic and Economic Dialogue” on Monday.

It was a comment that underscored how much the global financial crisis has changed the subtle balance of power in meetings of “the G-2,” the shorthand now used to describe sessions between the world’s largest economy and its fastest-rising economic power. Gone, probably forever, are the days when American delegations would show up in Beijing with advice about how the Chinese could become a “responsible stakeholder” in the world — the phrase coined by the Bush administration. The demands that the Chinese let their currency appreciate, clean up their banks or get rid of the subsidies for state-owned enterprises have been toned down.

You do not talk to your biggest creditor that way — especially when you have a record-sized loan application pending.

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Jim Sinclair’s Commentary

Things are improving? You have to be kidding.

What OTC derivatives and legal actions do not do to the financial industry, lousy business will. The exception to this is those financial institutions getting huge amounts of rescue funds from the government at low rates, ensuring enormous profit and marking up of worth-less OTC derivatives on the books of their trading units as a still standing gift of disgusting financial fabrication from the presently disgraced FASB.

BofA could eventually cut 10 pct of branches
By IEVA M. AUGSTUMS,

CHARLOTTE, N.C. – Bank of America Corp. could eventually shrink its 6,100-branch network by about 10 percent as consumers utilize other methods of banking, a company spokesman said Tuesday.

Bank of America spokesman James Mahoney made the comments when asked about a published report that CEO Ken Lewis and another bank executive described such a plan to investors at a meeting last week in Charlotte, N.C., where the bank is based.

The move would be a pullback from the bank’s two-decade expansion, most recently under Lewis’ command, which expanded the bank from coast to coast.

"What took place was a discussion about the long-term direction of the company," Mahoney said. "Over the longer-term, as customer demands evolve, we see a fewer number of branches that provide more services."

The bank does not have a specific number of branches that will ultimately compose its franchise, Mahoney said, adding there’s no immediate plan to close 10 percent of the bank’s branches.

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Jim Sinclair’s Commentary

This is the ever courteous Chinese way of saying the USA cannot commit to what the Chinese wish.

The Chinese have stated what they want, leaving nothing to the imagination. PLEASE put your emphasis on the last sentence of the

Meeting statement:

Zhou said, "the U.S. agreed that Chinese should have a greater voice at the World Bank and International Monetary Fund."

Now ask yourself what is the heck was accomplished by the showmanship in the currency market today?

Talks with U.S. focus on banks, not dollar: Zhou
Jul 28, 2009, 12:46 p.m. EST
By Greg Robb

WASHINGTON (MarketWatch) — The U.S. and China focused their attention on domestic and international bank reform and not on currency issues or the rebalancing of the economic relationship in their two-days of closed door meetings, Xiaochuan Zhou, the head of China’s central bank, said Tuesday. In a press conference, Zhou said China did not urge the U.S. to insure the security of China’s investments in the United States. Some U.S. officials did raise the topic of trying to rebalance the bilateral relationship by having China boost domestic demand and having the U.S. consumer save more but Zhou said there was not follow up discussion. Zhou said the U.S. agreed that Chinese should have a greater voice at the World Bank and International Monetary Fund.

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Jim Sinclair’s Commentary

The pedigree of the managers of this business with declining demands are the same as the managers of GM now with declining demand.

One would assume the results will be the same.

Postal Service Joins ‘High Risk’ List

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The above chart demonstrates the rapid decline of American mail volume in the past three years (Image courtesy of GAO).

Updated 11:15 a.m. ET

The U.S. Postal Service urgently needs restructuring to meet rapidly declining mail volume and must immediately cut costs, according to a new report by the Government Accountability Office. The Congressional auditing agency today added the nation’s mail delivery service to its list of "high risk" federal government agencies and programs that cost taxpayers billions of dollars in waste, fraud, abuse or mismanagement.

“There are serious and significant structural financial challenges currently facing the Postal Service," acting GAO director Gene L. Dodaro said in a statement.

The mail service has suffered as customers continue to choose e-mail and online bill payment programs over snail mail and as the recession has cut overall business spending. The Postal Service also faces significant infrastructural and personnel costs, including hefty payments to a retiree benefits program, Dodaro noted.

Mail volume is expected to fall by 28 billion pieces this fiscal year, to a total of 175 billion pieces, down from 203 billion pieces in fiscal year 2008, according to GAO. USPS projects a net loss of $7 billion this fiscal year and debts to climb above $10 billion, leading to a cash shortfall of approximately $1 billion. Losses are expected to continue in 2010.

The GAO’s classification "accurate reflects our current financial reality," USPS spokeswoman Yvonne Yoerger said in an e-mail. "Securing the fiscal stability of the Postal Service will require continued review of retiree health benefit pre-funding, as well as gaining flexibility within the law to move toward five-day delivery, to adjust our network as needed, to develop new products the market requires and to work with our unions, mailers, stakeholders and Congress to meet the challenges ahead."

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Posted at 2:12 PM (CST) by & filed under Jim's Mailbox.

Jim,

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The gold being thrown away for paper currency today carries no guarantee of value like the note pictured above. People can certainly be foolish when they pay attention to MOPE!

CIGA Marc

Posted at 2:03 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

The US Dollar managed to bounce precisely near the critical 78.40 support level on the weekly price chart just in time for the Chinese delegation’s arrival in Washington. Even an avowed cynic such as myself has to marvel at the temerity of the US monetary authorities intervention foray this morning. The fact that the pop higher in the Dollar came at a major chart support level makes the stunt even more obvious. Were the Dollar to have broken below 78.40 and taken out this swing low made early last month, there was a very real danger of a sharp meltdown all the way to 76 before any buyers would have be anticipated to show up. That would have made the US lose face in front of China and strengthened the hand of the Chinese as they voiced their dismay at US profligacy and runamok spending.

All is well in intervention land but even at that, no amount of chart tomfoolery is going to undo the growing global movement away from the US Dollar. Our cursed monetary authorities’ shortsightedness has destroyed our children’s monetary future and dashed our nation’s greatness upon the rocks of favoritism and elitism. We are all going to end up paying for this but this is exactly what Jefferson and Jackson and others warned about when they waged war against National or Central Banks usurping control over a nation’s currency.

The perma gold bears at the Comex, aka, the bullion banks, wasted no time in smashing bids  above $958 once again showing their presence at the rigged Comex market. This time however, the sell off in crude oil coupled with a flight away from risk and back into the Yen, led to panicked long liquidation as gold dropped down through the bottom of the trading range that has held for the last few trading sessions. Not only did it drop below $946 – $948, but it fell all the way through critical support at $940. Failure to gain its footing here sets up further downside and a test of the $932- $930 level. Conversely, a push back above $946 and into the trading range zone will allow for further consolidative type trade.

With today’s raid on Gold, the price charts have turned bearish once again short term. The daily chart however shows more of the same constricting pattern that has contained gold since February of this year. The highs are lower but the lows are higher as we move from February towards July. In other words, gold is forming a coiling pattern on the daily charts. Seasonally we normally do not see a lot of strength in gold until late in August so this pattern is nothing to be concerned about as long as gold can maintain its footing above $900. I would be a bit concerned were it to break down at that level as it could conceivably move down towards $880 were that to occur but even that would not particularly bother me since that would correspond with the 100 week moving average on the weekly chart which still shows a very broad sideways pattern going back as far as January 2008.

Puff the Magic Dragon must have been at work in the bond market today – either that or the friends of the Fed were given orders to buy bonds for window dressing for the Chinese delegation. The trend in bonds is still lower but they too might attempt to carve out a range trade above 112^16 and below 121^21.

Crude oil also seemed mired in a broad range as well working between $70 and $60.

What we appear to have are markets that are generally at the mercy of currency movements as a move higher in the Dollar and in the Japanese Yen translates to risk aversion and selling in commodities and a move lower in the Dollar and in the Yen translates to risk preference and buying in commodities. Because the Dollar has not yet broken completely down many commodity markets cannot clearly break out into defined uptrends but are retaining choppy price patterns. AS to when this will end, I am unsure but unless the US monetary authorities can suspend the laws of supply and demand, the Dollar is going to break down at some point and that will be that. Once the fat lady sings for the Dollar, gold will shoot up through $980 and then $1,000 although it might be the fall before that occurs.

The HUI was once again stymied around that pesky 360 level. It cannot seem to muster sufficient strength to convincingly better that level, especially on a closing basis. There is chart support near the 330 level and better support near 320. Below that you have to look as far as 305 before expecting some buying to emerge.

Interestingly enough, copper, while lower today, still has not at this point collapsed sharply lower. Based solely on its price action, one has to question how much of the risk aversion trade is more than a one day wonder. With the grains seemingly refusing to move lower, tomorrow could be a complete reversal of today’s downside action in gold and upside action in the US Dollar. Given the current state of idiocy of today’s electronic markets, I hesitate to do anything more than merely conjecture but without a sharp break in copper, I cannot see the risk aversion trades gaining much in the way of follow through especially given the fact that the Australian and New Zealand Dollar were both higher today in the face of a rush into the “safety” of the US Dollar and the Yen.

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

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