Posted at 3:02 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

The big news today was the 4th quarter US GDP number. The shocking number of 5.7% growth, the fastest pace in six years, far exceeded the expectation of most analysts (Count me in as being extremely sceptical of that number especially with unemployment at current levels). That sent equities on a tear higher and while gold has recently been moving in lockstep with those, today was a turnaround from that pattern. It was taken back down through the $1,080 level as the Dollar shot upwards making mincemeat of yesterday’s sellers.

The recent pattern of the Dollar moving lower on “good” news was disrupted as traders bid the greenback higher on the “happy news”. At that point it must have been moving higher purely on momentum because the equity markets did a complete “about face” dropping well off their highs and moving into negative territory at one time. What makes the initial move higher in the equities even more suspect was the action in the bond market, which moved up more than half a point – that is not what I would expect from bond traders if they were convinced the economy was on the mend and ready for a stronger recovery. If bond traders thought for one moment that the growth number served up by the Feds was (a.) realistic, and/or (b.) sustainable, they would have taken the bonds down sharply out of concern of Fed rate hikes and liquidity withdrawal measures.

Further confirmation that the bond traders’ dubiousness is appropriate would be the bearish chart pattern in crude oil. That market certainly is not acting like energy traders believe the economy is growing at a 5.7% clip or the price of crude would not be dropping $10 barrel from $83 to $73. Heck, while we are at it, if the feds would create a cash for old refrigerators program, a cash for old motorcycles program and a cash for old television sets program, we could probably get a GDP number up near 9% this quarter and go on to pass China in our rate of growth. Like I said earlier, a 5.7% number sounds like a pile of hooey to me – then again I own a cow that just laid a huge egg big enough for 50 omelets. Takes about the same amount of intelligence to believe the latter as the former.

There are so many mixed signals being given off by the various bellwether markets that attempting to get a read on things is becoming an exercise in futility. Between constant government intervention and surreptitious rigging operations, combined with hedge fund algorithm madness, money is ricocheting back and forth in such chaotic fashion, that many traders are getting chopped to shreds. That is resulting in more and more players moving to short term trades, which then makes volatility increase all the more. Probably the best thing to do for the average investor is use the weekly charts which tend to filter out so much of this short term “noise” that seems to be getting louder to the point of annoying.

Back to gold – speculative long liquidation continues its rather torrid pace dropping off substantially in yesterday’s down market. Both longs and shorts are getting out with the shorts having their intentions frustrated by the buyer of size that continues to make their presence felt below and near the $1,080 region. It is evident that physical demand for gold is helping to stem the rate of price decline in gold. Bears are continuing to pressure the metal trying to reach further fund stops below the $1074 level but are being stymied by the strong buying that is occurring. The longer gold can bounce back from the current lows near $1,080, the stronger that support becomes technically as tentative speculative longs will begin dipping their feet in the water with nervous shorts quickly ringing the cash register when prices dip down near this level. That serves to reinforce the level further. As usual, time will make it clear for us. I am encouraged however to see this determined buyer continuing to surface on these selling bouts. Could it be China or India?

For now, the technical posture in gold remains bearish for the short term so rallies will continue to find willing sellers until price moves back above the $1100 level and remains there for a least two consecutive sessions. Support remains near the $1075 level with another level of support beneath that at $1,030 – $1, 025. Incidentally, February gold enters its delivery period next week so the speculative action will be focused on the April contract. It will be interesting to see what we get in the way of gold deliveries, not that most of us believe anything that the Comex warehouses report. You could probably have 8000 contracts of gold stopped and the warehouses would report a movement of 1,200 ounces out.

I will send up a monthly gold chart later on today.

One of the big problems that the gold bulls have is the poor technical performance of the gold shares. It is difficult to get too excited about the metal’s prospects when you have hedge funds leaning on the shares with their ratio spreads. We really need to see the HUI get above 407 – 410 to garner some bullish excitement and give us some signs of life. For right now, about the best thing I can say for the shares is that many of them are extremely oversold on the daily charts.

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 4:42 PM (CST) by & filed under In The News.

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Jim Sinclair’s Commentary

You were sold the dollar rally based on a sustainable US economic recovery and a barrage of MOPE saying that the US dollar has no problems with bankrupt states but that the weak countries of the EU threaten the life of the euro.

That is raving total BS.

Gloomy Scenarios as Bankers Duck for Cover
Jan 27 2010, 3:49 pm by Alan Friedman

DAVOS, Switzerland – The U.S. and European economic recoveries could run out of steam later this year, and they could be faced with a prolonged period of low growth, high unemployment, a huge debt overhang on both governments and households, dangerous budget deficits, and a continuing loss of competitiveness.

That was the gloomy consensus taking shape among members of the world’s business, financial and political elites attending the 40th anniversary meeting of the World Economic Forum here.

By contrast, China, India and the rest of Asia are likely to be the only real engines of continuing economic growth this year, according to most of the economists, corporate types, sovereign wealth fund managers and government officials I talked to on the opening day of proceedings in this freezing cold Swiss ski resort.

The other theme that emerged was a barrage of banker bashing, debate, and criticism of Wall Street that would even make President Obama blush.

Nicolas Sarkozy of France, who formally opened the Davos meeting on Wednesday, won hands-down the title of Bank Basher In Chief with a rambling, ranting and only occasionally coherent speech about why a fundamental rethink of capitalism was needed.

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Jim Sinclair’s Commentary

Sell the Euro versus the US dollar based on Spain and Greece? Man have you been brainwashed.

States, cities, municipalities, villages, and hamlets are busted all across the US. MOPE is silent on this.

Pennsylvania Capital Should Weigh Bankruptcy, Controller Says
By Dunstan McNichol

Jan. 26 (Bloomberg) — Harrisburg, Pennsylvania, the capital of the sixth-largest U.S. state by population, should skip a $2.2 million debt service payment due Feb. 1 and consider bankruptcy, City Controller Dan Miller said.

Harrisburg faces $68 million in payments this year in connection with a waste-to-energy incinerator and should weigh Chapter 9 protection from creditors or state oversight through a program known as Act 47, Miller said today. Chapter 9 bankruptcy allows municipalities to reorganize rather than liquidate.

The alternatives are to sell assets such as an historic downtown market; an island in the Susquehanna River that includes the city’s minor-league baseball stadium; and the city’s parking, sewer and water systems, according to a preliminary 2010 budget and an emergency financial plan submitted yesterday.

“What I’m suggesting is we stop paying the debt service until we have a plan or we decide which way to go, in bankruptcy or Act 47,” Miller, a former city council member who became controller this month, said in a telephone interview. “I think it could save our assets instead of selling them.”

Mayor Linda Thompson, who unseated 18-year incumbent Mayor Stephen Reed in a Democratic party primary last year to lead the city of 47,000, didn’t return a call to her office for comment.

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Jim Sinclair’s Commentary

Manipulation of Perspective Economics. Get ready to put them all back in place by June 2010.

Central banks end US dollar emergency swap lines
By JANE WARDELL

The Bank of England said Wednesday that it and other major central banks are ending emergency lending arrangements put in place with the U.S. Federal Reserve in the wake of the global credit crisis, citing improvements in financial markets.

The decision marks the first unified retraction by central banks around the world of extraordinary support measures to boost lending after credit markets seized up in late 2007, causing the global economic downturn.

The Bank of England was joined by the European Central Bank, the Bank of Japan and the Swiss National Bank in announcing that the temporary reciprocal currency arrangements with the Fed would expire on Feb. 1.

"These lines, which were established to counter pressures in global funding markets, are no longer needed given the improvements in financial market functioning seen over the past year," the bank said in a statement. "Central banks will continue to cooperate as needed."

The Fed announced in December 2007 that it had authorized so-called liquidity swap lines with the European Central Bank and the Swiss National Bank. The agreement was extended to include several other central banks in April 2009.

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Jim Sinclair’s Commentary

For your information.

UBS tax evasion deal falls apart.
The Swiss government backed away from an agreement with the U.S. to hand over the names of U.S. clients of UBS (UBS) who were suspected of tax evasion. The development follows rulings from two Swiss courts that said disclosing the names would be a violation of Switzerland’s secrecy laws. The Swiss cabinet said it would continue talks with the U.S. on the matter but acknowledged the risk that the U.S. could resume its civil proceedings against UBS.

 

Jim Sinclair’s Commentary

The Fed is angry anyone wants the details

AIG Draws $2.4 Billion From Fed Credit Line, Most Since October
By Hugh Son

Jan. 28 (Bloomberg) — American International Group Inc., the bailed-out insurer whose borrowing through a U.S. commercial paper program was set to expire this month, increased its draw on a Federal Reserve credit line by the most since October.

AIG owes $25.8 billion on the line, about $2.4 billion more than last week, according to Fed data released today. The draw has increased for six straight weeks. The company said in November that it may borrow additional funds from its five-year Fed credit line to make payments on maturing commercial paper.

“This helps to highlight the risks we’re exposed to as citizens standing behind AIG,” said Bill Bergman, an analyst at Morningstar Inc. in Chicago. “While there’s much more liquidity in markets as a whole, lenders are still being selective.”

AIG, which got a $182.3 billion government bailout, had relied on the U.S. commercial paper program as firms including MetLife Inc. and General Electric Co. reduced their use of government-backed funds. New York-based AIG said it lost access to its traditional sources of liquidity after its 2008 rescue.

Commercial paper is used by companies to finance daily expenses such as payroll and rent. The Fed, which started a program in October 2008 to bolster the market after the Lehman Brothers Holdings Inc. bankruptcy, said it may wind down the facility in February. Lending through the program peaked a year ago at $350 billion.

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Posted at 4:27 PM (CST) by & filed under General Editorial.

Dear Extended Family,

Today I have received many emails concerning Mr. Soros’ dislike of gold. You may have noticed that Mr. Buffett and Mr. Soros seem to be in a PR contest for the position of spokesperson for the future of the USA.

Many Americans erroneously see gold as anti-American and those that do not see a major future for the US dollar as traitors.

You will recall Mr. Buffett’s recent entry into the railroad business was deemed by him and others as being a vote of absolute confidence in America’s continued economic recovery and its sustainability. It is sort of a quasi-competition for economic President of the USA.

I file his bearishness as what he sees as a patriotic position

Nobody can jawbone the gold market for more than a very short term period. Gold is going to and through $1224.10 on its way to $1274-$1278. Following this gold will move onward to $1650 prior to reaching Alf’s and Martin’s published price objectives. This will happen regardless of the many top callers and self deemed patriots screaming out of the woods today.

Respectfully,
Jim

Posted at 4:21 PM (CST) by & filed under Jim's Mailbox.

Notes From Underground: Why we owe the Greek Government a debt of gratitude
Yra | January 28, 2010 at 6:10 am

The State of Union address is over and the spin has begun. We heard a great deal but are concerned that there was little mention of how to curb the growing debt problem. It was great to hear that the President is desirous of the reinstallment of pay-go rules. This means that no tax cut or new spending program can preceed unless it is offset by spending cuts or tax increases. This was a budget tool that showed great success in the later Clinton years but funding two wars and the Bush tax cuts put it to bed. We are skeptical that this Pay-GO will see the light of day as the Liberals in Congress are already up in arms about defense spending, which is not included in the discretionary spending freeze.

 

Morning Jim,

"Nothing in the world can take the place of persistence.
Talent will not; Nothing is more common than unsuccessful men with talent.
Genius will not; Unrewarded genius is almost a proverb.
Education will not; The world is full of educated derelicts.
Persistence and determination alone are omnipotent.
The slogan "Press On" has solved, and always will solve, the problems of the human race."
–Calvin Coolidge.

Best,
CIGA Peter

Peter,

Amen to that!

Jim

 

Eric,

The Fed is the buyer. This will be public before this year is over.

Regards,
Jim

Bond Auction Results
CIGA Eric

A measure of auction strength is the bid-to-cover ratio. This measures the dollar volume of bids relative to that being sold. That is, demand relative to supply. The higher bid-to-cover ratio, the greater the demand.

The bid to cover ratio of today’s 7-year note auction was 2.85. This reflects good demand. This is better than December’s auction of 2.72. Look inside the numbers reflects a continuation of strange trend towards increased direct bidding. Direct bids, or non-primary dealer submitters bidding for their own house accounts jumped from 4.5% in December to 9% in January. This trend, as discussed in the ft article, Treasury bids drive speculation reflects someone trying to hide their interest in own these auctions. These auction results will only add to the speculation.

Source: Treasury January Auction
Source: Treasury December Auction
Definition: Bid-To-Cover Ratio

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U.S. dollar and Equities
CIGA Eric

Many have suggested that the inverse relationship between U.S. dollar and equities, the carry trade, has been broken.

As they say in Missouri, show-me.

U.S. Dollar Index and S&P 500:
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Looks on to me. If that is the case, another round of dollar devaluation will certainly surprise the growing number of equity bears.

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Gold Stocks
CIGA Eric

Notice the retest of the breakout gap in the gold stocks, again, on shrinking volume. This implies a contraction in downside force. All closes above the gap on shrinking volume would be considered bullish setups.

In addition, the U.S. dollar rally has displayed similar, inverse technical warnings.

While the tape is still negative, it quality is deteriorating and time is running out. This suggests that a turn is near. Be certain that the paper tiger operators know it.

Gold Miners Index ETF (GDX):
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Blackstone CEO Says Banker Bashing Risks Recovery
CIGA Eric

Banks may start to rein in lending, putting the economic recovery at risk, if politicians keep attacking them and regulatory uncertainty persists, Blackstone Group LP Chief Executive Officer Steven Schwarzman said.

Regulatory uncertainly, OK, that is a factor. Contraction in lending (credit) started well before "banker bashing" became politically fashionable. The break down of total bank creditat all U.S. commercial banks indicates that the demand for credit has been falling steadily since the middle of 2009. Nearly all series, except for cash assets, are showing year-over-year contraction. As the assets supporting leveraged-consumption continue to implode, the loans behind the bubble have declined. Nothing short of the restoration of reckless credit, where reward does not justify the risk, will be able to restore the bubble dynamics.

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Posted at 2:49 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Downside pressure in the US equity markets tripped up what looked like a pretty decent recovery move higher for gold in today’s session. Couple that with further weakness in the Euro and another rush away from the risk trades back into the Dollar, and gold was taken down well off its best levels of the session. The consistent weakness in the gold shares (HUI and XAU) did not help matters any as both indices look quite sloppy from a technical perspective. The HUI is perched perilously just above weekly chart support near the 377 level. Bulls will have to dig in their heels if they hope to prevent the bears from taking price down through the 50 week moving average.

There is rather significant speculative long liquidation occurring in the gold market at the current time as many funds are choosing not to roll out to the April contract as they leave the February to avoid delivery. That has allowed the bears to sell rallies with impunity. Yet the buying continues to come in down near the $1080 level. This buyer/buyers is putting up a valiant effort to hold the line in the face of the exodus of managed money flows. Unfortunately, they were overwhelmed with about an hour to go in the session as support cracked and down went gold. Price dropped some $6.00 below $1080 as stops were run before buying kicked in to take price back up above $1080, again. This is encouraging to see as it augurs physical demand is surfacing at this level and that the buyer/buyers are serious.

The physical market has always been the key to price bottoms in gold so we will see if that source of demand begins to ramp up even further now that price has fallen by such a substantial amount. Gold was trading above $1200 only two short months ago so a break in price of this magnitude will most definitely attract the attention of the physical buyers of the metal. Expect further scale down buying programs to kick in as accumulation slowly occurs at these lower levels. We’ll know when the bottom is in by watching the price action as the buying by the Eastern Central Banks will make itself evident on the charts. They are more than happy to take the gold off the hands of those in the West who are dumping it. Based on what I can see from the chart action of the last 30 minutes of pit session trade, those same Central Banks might have already been buying. Someone sure as hell bought in large quantities and scared the crap out of the shorts as price rose $10 off the session lows in 40 minutes.

Dollar bulls apparently mustered enough conviction to take the USDX up through very stubborn overhead resistance at the 79 level. You have to hand it to them, they were able to beat back the intense selling there. Once it appeared that they could maintain their footing above 79, gold bears wasted little time in pressing the market down through support. I still have to marvel at the notion that the US Dollar is a safe haven. Old habits die hard it would seem. When I see the fiscal train wreck that is only going to worsen for the foreseeable future coming rapidly down the tracks in the US, “safe” and “Dollar” is an oxymoron in my estimation. Let’s continue to watch this price action in the USDX to see if it is anything more than a one hit wonder. Already it looks like the Dollar is fading from its perch above 79.

Interestingly enough, in the rush away from risk, the bond market could not attract sufficient buying to overcome its stubborn resistance level up near the 118^25 level. It seems that bonds are leery about what they heard in last night’s State of the Union Address. Don’t blame them either – all I can see is spending, spending and more spending into the distant future. Thatsa whole lotta supply!

The S&P has some critical support near the 1067 level and if that gives way, stocks could take a rather severe dip in short time as that would get the attention of chartists and elicit calls of a top in the market due to economic woes and the lack of any serious job creation. This market has a tendency to pop higher every time it gets close to violating a downside technical level however (gee what a surprise) so let’s see if that occurs once again.

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 12:01 AM (CST) by & filed under In The News.

Dear CIGAs,

The investigation into the actions of the New York Federal Reserve Bank and the challenge to the nomination of the Chairman of the US Federal Reserve is quite embarrassing to say the least.

Please keep in mind that as OTC derivatives melted down the bankruptcy of Bear Stearns and the flushing of Lehman, enormous rescue funds were authorized for financial entities, partnerships, hedge funds, and individuals.

Now consider why these documents are redacted from the public.

Regards,
Jim

 

Jim Sinclair’s Commentary

Thank the Supreme Court and the removal of any dam to corporate political contributions for the following.

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Jim Sinclair’s Commentary

Introduced by the most noteworthy leaders on the planet today.

Can you put a name to the picture?

http://www.youtube.com/watch?v=3OA1srhpqnc

 

Jim Sinclair’s Commentary

For today’s MOPE (Management of Perspective Economic) lesson please note the following.

The figures stink, they were below an unspecified somebody’s expectation, but do not worry the annual losses in 2009 look a tad better than losses in 2008.

Look at it this way. Your uncle has a gambling problem. He goes to his favorite poker game. He reports that he lost his ass, but his losses on the yearly basis were actually looking somewhat better than last year. Is this a cause to celebrate?

US Nov home prices dip, annual drop improves-S&P
Tue Jan 26, 2010 9:53am EST
By Lynn Adler

NEW YORK, Jan 26 (Reuters) – U.S. home prices slipped in November and were softer than expected in the latest sign that a rebound in the U.S. housing market is still tenuous, according to Standard & Poor’s/Case-Shiller indexes on Tuesday.

The S&P composite index of home prices in 20 metropolitan areas slipped 0.2 percent in November after a revised 0.1 percent October dip, for a 5.3 percent annual drop.

A Reuters survey had forecast a 0.1 percent November rise. Prices were originally reported as unchanged in October.

"Up until a while ago it looked like home prices might have bottomed," said Suvrat Prakash, U.S. interest rate strategist at BNP Paribas. "There might be a double dip in home prices, which could feed through to the rest of the economy," he said, adding that housing still faces many hurdles.

Several major government supports for housing are soon ending, including an extended and expanded home buyer tax credit for which buyers must sign contracts by April 30.

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Jim Sinclair’s Commentary

Just a reminder for those of you who bought the US dollar rally at the Christmas 09 bull rodeo based on the clear and present US economic recovery and sustainability that wasn’t and will not.

Then came the algorithms followed I am sure by new lows.

Fitch: U.S. Retail Credit Card Defaults Hit Near-Record Levels with No Relief in Sight
January 20, 2010

U.S. consumers defaulted on store-branded credit cards at near-record levels during the holiday shopping season, with 2010 likely to bring more of the same trend, according to Fitch Ratings.

Fitch’s December Retail Credit Card Index results show that more than one in every eight dollars of receivables was written off as uncollectable during the November collection period on an annualized basis. Taken with the recent delinquency trends and Fitch’s expectation for unemployment, Fitch expects retail card chargeoffs to remain elevated throughout first half-2010.

"We do not foresee any meaningful improvement in the retail card credit quality in the coming months," said Managing Director Michael Dean. "U.S. consumers remain under stress on a number of fronts, most notably on the employment front, and retail card chargeoffs will continue to reflect those pressures."

Despite the elevated chargeoff and delinquency measures, Fitch expects retail card ABS ratings to remain stable throughout 2010. Excess spread remains robust, which coupled with loss coverage multiples and other structural protections will shield investors from potential downgrades or early amortization scenarios.

In December, Fitch’s Retail Credit Card Chargeoff Index snapped a two-month decline, rising 122 basis points (bps) to 12.56% from the previous month. Throughout 2009, chargeoffs surpassed the previous record (12.25% in January 2005) five times, establishing a new all-time high of 12.81% in August. Throughout the year, retail chargeoffs averaged 11.88% (more than 42% above the historical average of 8.34%).

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Jim Sinclair’s Commentary

Green shot?

U.S. households struggle to afford food: survey

WASHINGTON (Reuters) – Nearly one in five U.S. households ran out of money to buy enough food at least once during 2009, said an antihunger group on Tuesday, urging more federal action to help Americans get enough to eat.

"There are no hunger-free areas of America," said Jim Weill of the Food Research and Action Center. Weill said he hoped President Barack Obama would exempt public nutrition programs from a proposed three-year freeze on domestic spending.

Obama has a goal to end childhood hunger by 2015. He backed a $1 billion a year increase in school lunch and other child nutrition programs a year ago.

Nationwide polling found 18.2 percent of households reported "food hardship" — lacking money to buy enough food — in 2009, according to the group. That is higher than the government’s "food insecurity" rating of 14.6 percent of households, or 49 million people, for 2008.

Households with children had a "food hardship" rate of 24.1 percent for 2009 compared with 14.9 percent among households without children. Twenty states had rates of 20 percent or higher. Seven Southern states led the list.

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Jim Sinclair’s Commentary

Damn those censuses anyway! Wasn’t that 1.1% increase one of the reasons for the dollar bull?

US Nov factory orders revised down due to Census error
Wed Jan 27, 2010 12:26pm EST

WASHINGTON, Jan 27 (Reuters) – Orders for U.S. manufactured goods in November were lower than initially reported because of a processing error, the U.S. Census Bureau said.

November factory orders rose by 0.6 percent from the previous month, not 1.1 percent as reported on Jan. 5.

Durable goods orders fell 0.7 percent in November. That figure had been reported as an increase of 0.2 percent.

"The Census Bureau identified a processing error that occurred when revising historic seasonally adjusted data for the November (data month) releases," Census said in a notice posted on its website. "The data have been corrected."

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Jim Sinclair’s Commentary

Remember the safe haven of money market funds?

Suspending Money Market Redemptions Is Now Legal; SEC Approves New Money Market Regulation In 4-1 Vote
Tyler Durden on 01/27/2010 11:31 -0500
Mary Schapiro

Zero Hedge discussed a month ago the disastrous prospects of what would happen if the new proposal contemplated by the SEC, which would allow the suspension of redemptions from Money Market Funds, were to pass. Well, in a nearly unanimous vote, Money Market Funds now have the ability to suspend redemptions, courtesy of the SEC’s just passed 4-1 vote. This explains the negative rate on bills: at this point, should there be another meltdown, money market investors will not, repeat not, be able to withdraw their money purely on the whim of Mary Schapiro. As the SEC noted: "We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares." Too bad investors’ hardships considerations ended up being completely irrelevant.

As a reminder, here is the gist of the proposal as pertains to redemption suspension:

Proposed rule 22e–3(a) would permit a money market fund to suspend redemptions if: (i) The fund’s current price per share, calculated pursuant to rule 2a–7(c), is less than the fund’s stable net asset value per share; (ii) its board of directors, including a majority of directors who are not interested  persons, approves the liquidation of the fund; and (iii) the fund, prior to suspending redemptions, notifies the Commission of its decision to liquidate and suspend redemptions, by electronic mail directed to the attention of our Director of the Division of Investment Management or the Director’s designee. These proposed conditions are intended to ensure that any suspension of redemptions will be consistent with the underlying policies of section 22(e). We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares. Accordingly, our proposal is limited to permitting suspension of this statutory protection only in extraordinary circumstances. Thus, the proposed conditions, which are similar to those of the temporary rule, are designed to limit the availability of the rule to circumstances that present a significant risk of a run on the fund. Moreover, the exemption would require action of the fund board (including the independent directors), which would be acting in its capacity as a fiduciary. The proposed rule contains an additional provision that would permit us to take steps to protect investors. Specifically, the proposed rule would permit us to rescind or modify the relief provided by the rule (and thus require the fund to resume honoring redemptions) if, for example, a liquidating fund has not devised, or is not properly executing, a plan of liquidation that protects fund shareholders. Under this provision, the Commission may modify the relief ‘‘after appropriate notice and opportunity for hearing,’’ in accordance with section 40 of the Act.

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Jim Sinclair’s Commentary

An economic recovery with sustainability?

Airlines suffered record drop in traffic in 2009: IATA
Jan 27 05:19 AM US/Eastern

International airlines suffered their biggest decline in traffic since 1945 last year as passenger demand fell 3.5 percent, the International Air Transport Association said Wednesday.

Freight also fell, by 10.1 percent, as "full-year 2009 demand statistics for international scheduled air traffic that showed the industry ending 2009 with the largest ever post-war decline," IATA said in a statement.

"In terms of demand, 2009 goes into the history books as the worst year the industry has ever seen," said Giovanni Bisignani, director general of the world’s biggest airlines’ association.

"We have permanently lost 2.5 years of growth in passenger markets and 3.5 years of growth in the freight business," he added.

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Jim Sinclair’s Commentary

Pakistan today.

The gun markets of Pakistan – CNN.com
By Suroosh Alvi, Founder, Vice Magazine and VBS.TV
January 27, 2010 3:55 p.m. EST

Brooklyn, New York (VBS.TV) — On January 22, 2006, the New York Times reported that all foreign journalists were being banned from Pakistan’s tribal areas, which has been called "the most dangerous place in the world." A week before that, the CIA fired missiles remotely from a Predator aircraft into the Waziristan tribal area. They were hoping to eradicate a bunch of al Qaeda operatives. Instead, they killed 18 women and children.

One week before that, I arrived in Pakistan to visit Darra Adamkhel, the massive open-air market located deep in the tribal areas, where a frighteningly high percentage of Islamic holy warriors goes to buy their guns.

Gaining access to the tribal areas was next to impossible. It took months of pre-planning with the consul general of Pakistan in Montreal and top officials in Peshawar. They repeatedly denied us entry because, according to them, the Pakistani Army had too many "sensitive operations" going on in that region. Without my personal advantage (a family friendship with the governor of the Northwest Frontier Province), we never would have gotten in.

The government assigned me and my team a political agent named Naeem Afridi. He was born and raised in the tribal areas. He took care of us while we were there, and he was a godsend. You can’t do anything in this part of the world without someone like Naeem.

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Posted at 11:58 PM (CST) by & filed under Jim's Mailbox.

The immovable object meets an unstoppable force

“Today we’ll see quiet defensive trading ahead of the FOMC meeting,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “The market fully expects the Fed to reiterate low rates for longer. We may see a bit of concession leading up to the auction.”

If an unstoppable force meets an immovable object, what happens?

The U.S. bond market is created.

The defense of critical support, dubbed the push of the invisible hand, has been successful. The technical picture, however, suggests that while a battle may have been won the war still rages. TBT (2x inverse long bonds) shows contracting volume while maintaining both gap and neckline support. As long as this persists, it suggests waning downside force.

That which cannot break support with force will eventually reverse and attempt to break resistance with force.

Long Bonds 2x Inverse ETF (TBT):
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Positive money flows from strong hands have not retreated despite the negative technical setup. Traders normally swarm for the kill when they sense blood in the water. We don’t see this in the bond market. The battle between illusion (immovable object) and economic reality (unstoppable force) in the bond market is no trivial matter. The resolution of this war in terms of interest rates will have broad economic consequences. Consequences that would be deemed a threat to our national interests.

Source: bloomberg.com

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U.S. Dollar
CIGA Eric

The dollar rally is beginning to raise some notable red flags.

The move above the swing high occurred on shrinking volume. This is a false breakout.

While the dollar has moved at a relative new high, the move has not been confirmed by either cumulative volume or momentum. As long as price remains unconfirmed, it creates a bearish condition known as a negative divergence.

COT money flows reveal commercial traders adding to their significant short position.

While you should never argue with direction of the tape, this does not mean that its quality should not be challenged.

US Dollar Index ETF (UUP):
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Posted at 2:55 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

The December US new home sales number released this morning tripped up the equity markets and brought further buying into the long bond with risk aversion trades the play of the day. Analysts ( I sure wish I could grow up to become one of those!) were expecting sales to climb 2.8% when they actually were reported dropping 7.6% from November 2009. That was once again enough to send money pouring back into the Japanese Yen and to a certain extent, the US Dollar with the result that most commodities were hit by another wave of selling as Managed Money continues to liquidate long positions and some hedgies play the short side.

Gold was up overnight but the home sales number unnerved would-be longs out of fear of further long liquidation by the fickle, short-term oriented crowd allowing bears to shove prices lower. However, the same buyer/buyers of size appeared near session lows and were able to push it up off its worst levels midway through the session. Later on, a wave of fresh selling appeared which overwhelmed their valiant effort to move price higher. So far this buying is coming in any time gold dips below $1100. As I said yesterday, it remains to be seen whether they are large enough to eat into the Managed Money and Hedge Fund algorithm-based selling. The longer gold can hold above support layered between $1080 – $1100, the better the chance of it forging a trading range within a period of consolidation. I want to continually remind the readers that both China and India will become active (if they are not already) on setbacks in the price of gold as their long term strategy of acquiring gold for their reserves is precisely that, “long –term”. They are not momentum buyers but value buyers ( yes, some of them still actually exist in this world of hedge fund idiots). As such, they will look to make their purchases into any waves of speculative long liquidation that might occur. Value buyers show up during period of price weakness (where have you heard that before?)

I am still watching the long bond very closely for signs of any potential upside breakout as that would be the clearest signal to me that this market has voted on an “L” shaped “recovery” (I use the word ‘recovery’ very loosely here because there can be no ‘recovery’ without job creation but that is the favorite buzz phrase for MOPE these days) or worse, another leg down in the economy. A “V” shaped recovery would see the long bond dropping sharply and taking out levels last seen in December of 2009. So far the bonds are having trouble getting through the 118^25 – 119^00 level as sellers are appearing there in size so the jury is still out as to what this market is going to do. Suffice it to say the tendency of late has been for higher prices and lower long term rates. Even on the short end of the curve, the market is saying that the chances of any interest rate hike are basically ZERO. No one in the interest rate markets believes any of the BS coming from those yakking about the Fed moving to sop up excess liquidity. As if they needed any further convincing, today’s home sales number is evidence just how sick the real estate markets remain. Even with the feds throwing around taxpayer money to prop up sales, it just ain’t working. People without jobs do not buy houses. It is just that simple. For that matter they may not be buying many Toyotas either judging by the recalls. Ouch.

One further note on the bonds – supply issues are perhaps the only thing keeping this market from moving much higher for now. Traders are still looking at massive, and I do mean ‘massive’ amounts of bond sales, to finance the spending orgy by the current administration and its pals in the Congress. Any talk about “spending freezes” amounts to a snowball in hell since the amount being discussed is miniscule compared to the overall federal liabilities that are being generated. The current rate of spending guarantees an unsustainable increase in interest payments alone within the next 5 – 7 years. Throw into this hellish mix the pitiful fiscal condition of many of the US States, and the only way this sort of witches brew of fiscal poison can ever hope to be dealt with is through a Dollar devaluation.

While the Dollar was higher today due to risk averse trades, it still appears to be having trouble with the 79 level on the USDX chart. Momentum indicators are positive but momentum is also waning. Bulls will have to push price past that level in a convincing fashion or we are going to see further selling in the form of stale long liquidation. We will continue to watch its activity for signs of what is coming next.

The gold shares as indicated by the HUI were weak once again today. The technical indicators on the daily chart are approaching oversold levels so that might help put some kind of bottom in them but they have a lot of work to do yet to repair the chart damage that has been inflicted. The weekly chart has the 50 week moving average coming in near the 378 level which corresponds with the 38.2% Fibonacci retracement level of the rally from late 2008 through late 2009. The setback in price is pretty much typical of a bull market in a corrective phase. Price could theoretically move as low as 335 or so without doing any serious long term chart damage but that would certainly not be welcome for the friends of gold.

I should note here that since the week of Christmas 2009, gold has been moving almost in lockstep with the price action of the S&P 500. What that tells me is that hot money flows are ebbing and flowing as risk is either in or out. When equities tank, gold tends to move lower and when equities rise, gold tends to rise with it. That is the signature of Managed Money flows. These flows are automated algorithm trades and are the primary drivers of today’s markets. Without them commodities or currencies cannot generate a sustained move higher. However, in the case of gold, gold is also a safe haven trade and therefore a clash arises between these algorithms based on price momentum and value based buyers of large size who are not momentum oriented. The latter group are the pure fundamentalists who study the larger macroeconomic picture and based on their analysis acquire gold for wealth preservation, and in the case of the increasingly influential far-Eastern Central Banks, for diversification of their massive reserves. To further complicate the price action in gold, we have the usual orchestrated bullion bank price rigging activity to deal with which is always present on rallies.

After the move lower in gold since last week, it will be enlightening to have a look at this coming Friday’s commitment of traders data to give us some insight into just how much of this liquidation type selling was present and how much might be fresh short selling.

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

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