Posted at 6:34 PM (CST) by & filed under General Editorial.

Good Morning from China!

4 PM yesterday until 6 AM today was for me the sleep of the exhausted.

My friends here know how to work, but your friend here, me, decided rest was warranted before today when I give an address to the Chinese decision makers gathering at a major conference here in Beijing.

The Conference, although quite an important event, has not been a major focus of my trip. It came about because my hosts here are part of the sponsoring organization and therefore it is the polite thing to do.

I find it intriguing that primary raw materials used in China and items considered to be strategic continue to rise in price. Ni is up 50%, Crude is holding in the $66-$70 level and the talks between the Chinese and the Australians on iron ore are tense – they have ceased.

All of the above is occurring when the Chinese are seriously pursuing alternative basket type currency items for diversification of the reserve currency.

Any seasoned market participant knows that a currency’s value, such as the dollar, depends on the momentum of buying as a key to a trend.

I see this as a proper definition of how a reserve currency value impacts international inflation in a period of dire business conditions, a concept that has wholly evaded the Western economic and market thinking with the exception being those of you who apply yourselves to this publication.

Gold has bottomed and will seek $1224 and $1650.

The bear case in the US dollar has its foundation in granite.

Respectfully,
Jim

Posted at 3:25 PM (CST) by & filed under In The News.

Dear CIGAs,

In case you missed it China announced a few days ago that they have made the decision to increase strategic energy supplies. That means here and at the general market range. This has to tell you something about their serious concern for the level of the dollar as hyperinflation is a currency event, not an economic supply/demand event.

Jim Sinclair’s Commentary

A fast, clean, painless GM bankruptcy. That is the equivalent of the Great Depression of a jumbo shrimp.

Perils ahead in GM bankruptcy include liquidation, pension shortfall

We’ve got a new D-Day in the historic General Motors Corp. bankruptcy: If the automaker’s good assets cannot be sold to a "New GM" by July 10, CEO Fritz Henderson told a bankruptcy judge in New York today, the company will be forced to begin liquidation proceedings.

Leave it to Henderson, nothing if not direct, to cut to the heart of GM’s existential predicament. Is it yet another riff on the "shock-and-awe" strategy popularized last fall, which posited that a collapse of GM into bankruptcy or worse would prove cataclysmic for the national economy and, certainly, the Midwest. Yes, it is.

And, to a point, it’s probably true — emphasis on the "to a point" part. Team Obama may be intent on getting a speedy resolution to this silly little thing called the largest industrial bankruptcy in American history. And its Treasury Department has a penchant, at least in the Detroit Auto space, for setting tight deadlines and meeting them. But I’m not at all convinced the boss and his minions would let the General collapse into a heap of cut-rate auctions if the judge drags his feet.

Too much to lose. Too much political capital investment, even by the president. Too much danger to organized labor, the staying power of GM’s pension fund and auto communities in the Heartland. Indeed, an emerging fear — emerging, at least, in the public consciousness — is the likelihood that GM is burning its pension fund on buy-outs and early retirements at a faster rate than anticipated, as the New York Times details in an important story story posted late today. The danger is that pension obligations will run ahead of GM’s ability to pay them, meaning U.S. taxpayers would foot the difference through the entity known as the Pension Benefit Guaranty Corp.

"GM basically raided the pension plan, by having a lot of these severance benefits paid through it," Douglas J. Elliott, a fellow with the Brookings Institution who specializes in financial institutions and policy, told The Times. Active workers "could find that they don’t get their full pensions when they retire, because the plan has had to be terminated because of the payments to current retirees. There are definitely these intergenerational transfer issues with underfunded pensions."

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Jim Sinclair’s Commentary

I am not sure that Mr. Leahy is familiar with India’s tradition of having their wives wear the bank.

Certainly the new India and the make believe world of Bollywood is a large group of speculators ripe for the picking.

In general the chance of mobilizing the majority of Indian gold is well below zero.

India gold dealers tap domestic stocks
By Joe Leahy in Mumbai
Published: June 29 2009 18:52 | Last updated: June 29 2009 18:52

Indians are set to begin trading on Tuesday on the country’s new gold bullion market in a move likely to mobilise the thousands of tonnes of the precious metal that people keep hidden under their beds as savings.

The National Spot Exchange, controlled by Financial Technologies, the Indian market company, will begin offering contracts for domestic gold bullion, ranging in size from 8g to 1kg.

“Though India has a huge household stock of around 20,000 to 25,000 tonnes of gold, there was no single market available where this could be sold,” said Anjani Sinha, managing director and chief executive of the National Spot Exchange.

Indians have saved in gold for millennia. The country is the world’s largest consumer of the metal, importing nearly 800 tonnes a year, or 20 per cent of global demand.

But while there is a modern market for the import of bullion, once it enters India, there is no transparent exchange for its resale and conversion back into bullion.

More…

Posted at 1:46 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

News that China wants to further press the issue of an alternative to the Dollar as the main currency for global trade sent the Greenback reeling and enabled gold to beat back selling associated with further weakness in crude oil. Buying entered the gold arena when the $940 level was breached inducing short covering by weak-handed bears and sending the market up and through all of the major moving averages after finding support near the 100 day. The close was in the upper half of the day’s trading range and under normal circumstances one would expect to see further upside follow through – then again, that assumes a freely traded market which gold is not.

Today is the start of a new trading month and a new quarter and that means yesterday’s bizarre price movements associated with book squaring and positioning are hopefully behind us and we can get a better read on the price action of these whimsical markets. To show you how idiotic yesterday’s whackiness was, the HUI has taken back everything it lost yesterday and then some. Up, down, up, down, up, down… And to think that we thought we were through playing with yo-yo’s when we got out of junior high.

The fact that gold was able to shrug off selling associated with weakness in the energies and in some of the grains is encouraging. Interestingly enough, all of the metals were higher today, including platinum and palladium and copper. Resistance in gold is at today’s session high followed by $950 and then $958- $960. It will take a closing push through $960 to target our old pal at $980. Support is at today’s session low near the 100 day moving average.

The Dollar is perched perilously just below the 80 level on the USDX  and from a technical perspective there does not look to be much in the way of support for it until you get closer to 79. As long as weakness in the greenback continues, gold bears will be forced to expend a tremendous amount of ammunition to absorb hedge fund buying in gold. It would help things tremendously in the gold pit were crude oil to mount a charge back above $71 and maintain its footing there. A charge higher in crude will reveal that inflationary thinking is dominating that pit rather than a deflationary mindset.

I will try to get a monthly chart of gold up for June later today as time permits.

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 7:03 PM (CST) by & filed under General Editorial.

My Dear Friends,

My 2nd full day in China is coming up with a full list of meetings with Beijing business and government people.

A total reversal in time is actually an easier transition to handle than less hours. You just need to fight your way through that late afternoon fatigue.

I assure you of the serious nature of China’s concern over the building pressures on the US dollar. It is not something they want or take any pleasure in.

It is important to understand that value of a currency is a momentum concept.

It is not the buying or selling that counts as much as the waning of buying that is the subject at hand.

MOPE (management of perception economics) may declare the Chinese are just talking, but that is so wrong.

MOPE may declare the Chinese are flip-flopping on their statements but that declaration is in Western media comment and not in the Chinese media.

The truth is that China is where the money is.

The truth is that China is where you have to be if you wish to be a major part of tomorrow.

Only entities that understand that all transactions are culture driven will succeed.

I will keep you informed of the view from here. The West’s perspective is quite different from what you see here. It is insulated by the constant media education and manic markets run by hedge fund algorithms with no reasoning abilities whatsoever other than mathematics.

Thank all of you around the world that browse important events to help keep me posted 24/7.

I want to send a special thanks to CIGA Green Hornet. I should have made this special mention long ago as he has been working extremely hard to help us all for some time now. My sincere apology goes to this great friend of the community.

Respectfully yours,
Jim

Posted at 6:53 PM (CST) by & filed under In The News.

Dear CIGAs,

JB Slear asks what is in your garage?

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Jim Sinclair’s Commentary

There are green shoots here. I know it. Just a minute now, I will find them.

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Jim Sinclair’s Commentary

States are bracing for shutdowns. Other states are right behind California.

The Formula of 2006 is so far on the money, yet few will yet accept the final outcome as it pertains to the US dollar.

Despite the Formula being correct so far, many still doubt its position on the US dollar and gold.

States brace for shutdowns
Time is running out for the legislatures in Arizona, California, Indiana, Mississippi and Pennsylvania to solve budget gaps.
By P.J. Huffstutter and
Nicholas Riccardi 
June 30, 2009

Reporting from Indianapolis and Denver — The last time Indiana missed its deadline for passing a budget and had to shut down the government was during the Civil War.

But on Monday, as lawmakers raced to hammer out an agreement over school funding, state agencies began preparing 31,000 workers to be temporarily out of a job. Republican Gov. Mitch Daniels has warned residents that most of the state’s services — including its parks, the Bureau of Motor Vehicles and state-regulated casinos — would be shuttered unless a budget is passed today.

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Jim Sinclair’s Commentary

Five on the 26th. Is that not a one week record?

Five More Banks Closed by Regulators
Total Failures so Far: 50 Banks and Credit Unions in 2009
June 29, 2009 – Linda McGlasson, Managing Editor

Five more banks were closed by banking regulators on June 26, bringing the total number of bank/credit union failures to 50 for 2009. Two banks in Georgia, one in Minnesota and two in California were shut down. Four were bought by other banks. The total assets of the five banks were just over $1 billion.

These five come on the heels of three banks closed on June 19.

The Federal Deposit Insurance Corporation (FDIC) paid out the insured deposits of Community Bank of West Georgia, Villa Rica, GA. The bank was closed by the Georgia Department of Banking and Finance. The failed bank had assets of $199.4 million and deposits of $182.5 million. The customers of the failed bank receiving direct deposits have been transferred to United Community Bank, Blairsville, GA. The estimated cost of the failure to the FDIC’s Deposit Insurance Fund will be $85 million. Community Bank of West Georgia is the eighth Georgia bank to fail this year.

The second Georgia bank to fail was Neighborhood Community Bank, Newnan, GA. The Georgia Department of Banking and Finance closed the bank and appointed the FDIC receiver. The FDIC in turn sold the failed bank’s deposits to CharterBank, West Point, GA. The four offices of Neighborhood Community Bank are now branches of CharterBank. The failed bank had $221.6 million in assets and deposits of $191.3 million. CharterBank agreed to purchase $209.6 million of assets. The bank and FDIC are in a loss-share agreement on $178.5 million of the failed bank’s assets. The FDIC DIF cost will be $66.7 million. Neighborhood Community Bank was the ninth bank in Georgia to fail in 2009.

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Jim Sinclair’s Commentary

This is a reasonable question asked by a rationale source.

Did leak from a laboratory cause swine flu pandemic?
By Steve Connor, Science Editor
June 30, 2009

Same strain of influenza was released by accident three decades ago

It has swept across the world killing at least 300 people and infecting thousands more. Yet the swine flu pandemic might not have happened had it not been for the accidental release of the same strain of influenza virus from a research laboratory in the late 1970s, according to a new study.

Scientists investigating the genetic make-up of flu viruses have concluded there is a high probability that the H1N1 strain of influenza "A" behind the current pandemic might never have been re-introduced into the human population were it not for an accidental leak from a laboratory working on the same strain in 1977.

Yesterday, the Department of Health announced a further surge in the number of cases in Britain with another 1,604 confirmed over the weekend, and the death of a nine-year-old girl in Birmingham with underlying medical complications; the third death in Britain from swine flu-related problems.

Almost 6,000 Britons have now been infected with the influenza "A" (H1N1) strain of swine flu. But two medical researchers believe that this strain of the virus had been extinct in the human population for more than 20 years until it was unwittingly reintroduced by scientists working in a research lab somewhere in the world, leading to a pandemic in 1977 that began in Russia and China.

"Careful study of the genetic origin of the [1977] virus showed that it was closely related to a 1950 strain, but dissimilar to influenza ‘A’ (H1N1) strains from both 1947 and 1957. This finding suggested that the 1977 outbreak strain had been preserved since 1950. The re-emergence was probably an accidental release from a laboratory source," according to the study published in The New England Journal of Medicine.

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Jim Sinclair’s Commentary

These things are not dollar positive.

U.S. housing misery poised to enter new phase
Fri Jun 26, 2009 1:25pm EDT
By Herbert Lash – Analysis

NEW YORK (Reuters) – Signs that home prices may have bottomed have stirred hope on Wall Street that the economy is on the mend, yet tight credit and a new foreclosure wave cast doubt on any looming housing revival.

Sales of previously owned U.S. homes rose for a second straight month in May, realty data on Tuesday showed, while the U.S. government and Federal Reserve have designed a number of programs to alleviate a battered housing market.

However, the chief economist of the National Association of Realtors warned of the danger of a "delayed" recovery in housing, with prices down 32 percent nationwide from their peak three years ago.

Big risk factors that could spur more foreclosures include expectations of rising unemployment and the forecast resetting of interest rates on 2.8 million subprime and Alt-A mortgages in the next two years.

Delinquency rates on mortgage payments typically rise in tandem with unemployment, which is expected to top 10 percent after hitting a 25-year high of 9.4 percent in May. And when mortgages interest rates reset, they are typically at higher rates that can cause monthly payments to balloon.

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Jim Sinclair’s Commentary

Dark pool exchanges may be enfranchising blindness. We shall see.

The New York Stock Exchange LLC (“NYSE”) will be decommissioning the requirement to report program trading activity via the Daily Program Trading Report (“DPTR”), which was previously approved by the Securities and Exchange Commission (the “Commission”).1 The last trade date for which member organizations will be required to file the DPTR with the Exchange will be July 10, 2009 and therefore the last required date to submit the DPTR will be July 14, 2009.

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Jim Sinclair’s Commentary

Read CDS risks as more OTC derivative liabilities.

UPDATE 1-AIG adds risk factor, may recognize more CDS losses
Mon Jun 29, 2009 6:32pm EDT

NEW YORK, June 29 (Reuters) – American International Group Inc (AIG.N) revised its 2008 annual report to add a new risk factor that shows it may recognize valuation losses on a credit default swap (CDS) portfolio held by its troubled financial products unit.

At issue is a super senior CDS portfolio held by AIG Financial Products with a notional value of $192.6 billion as of March 31, 2009.

The company said in a regulatory filing that it might have to incur further losses on the portfolio if credit markets continue to deteriorate.

The fair value of the derivative liability for CDS transactions was $393 million at March 31, 2009, the company said. (Reporting by Vikram S. Subhedar; Editing by Tim Dobbyn)

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Jim Sinclair’s Commentary

This is a reasonable question asked by a rationale source.

Did leak from a laboratory cause swine flu pandemic?
By Steve Connor, Science Editor
June 30, 2009

Same strain of influenza was released by accident three decades ago

It has swept across the world killing at least 300 people and infecting thousands more. Yet the swine flu pandemic might not have happened had it not been for the accidental release of the same strain of influenza virus from a research laboratory in the late 1970s, according to a new study.

Scientists investigating the genetic make-up of flu viruses have concluded there is a high probability that the H1N1 strain of influenza "A" behind the current pandemic might never have been re-introduced into the human population were it not for an accidental leak from a laboratory working on the same strain in 1977.

Yesterday, the Department of Health announced a further surge in the number of cases in Britain with another 1,604 confirmed over the weekend, and the death of a nine-year-old girl in Birmingham with underlying medical complications; the third death in Britain from swine flu-related problems.

Almost 6,000 Britons have now been infected with the influenza "A" (H1N1) strain of swine flu. But two medical researchers believe that this strain of the virus had been extinct in the human population for more than 20 years until it was unwittingly reintroduced by scientists working in a research lab somewhere in the world, leading to a pandemic in 1977 that began in Russia and China.

"Careful study of the genetic origin of the [1977] virus showed that it was closely related to a 1950 strain, but dissimilar to influenza ‘A’ (H1N1) strains from both 1947 and 1957. This finding suggested that the 1977 outbreak strain had been preserved since 1950. The re-emergence was probably an accidental release from a laboratory source," according to the study published in The New England Journal of Medicine.

More…

Jim Sinclair’s Commentary

From China’s view please note the time of your morning gold was sold off from plus $6. The dollar put on a sideways movement with a plus 15/100 spike. The paper traders are doing everything possible to prevent the inevitable. They will fail.

 

Jim Sinclair’s Commentary

Too big to fail and too small to care seems to be an international malady. The overt creation of paper currency will result in gold to going to Alf and Armstrong’s numbers, rendering my now 9 year projection of $1650 too conservative.

Japan Bails Out Struggling Chip Maker with $1.7 Billion Package
By HIROKO TABUCHI
July 1, 2009

TOKYO — In its first major industry bailout since the start of the global financial crisis, Japan said Tuesday that it had put together a package of $1.7 billion in public and private money to shore up a troubled chip maker, Elpida Memory.

By using public money to prop up Elpida, Japan hopes to salvage its only major maker of dynamic random access memory chips, or DRAM, considered vital to its electronics industry. The aid package also protects the nearly 6,000 workers at Elpida, which suffered record losses last year as the demand for semiconductors fell sharply.

But in using taxpayers’ money, the government also risks keeping feeble companies on life support, which ultimately could hurt Japan’s competitiveness, analysts said. Japan has set aside 2 trillion yen, or $21 billion, in public funds to aid companies hurt in the economic slowdown.

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Jim Sinclair’s Commentary

The party line delivered by the PR Lady was that this was only an accounting glitch. How many other depositories suffer from this incapacity to keep up with demand for delivery?

Please be careful.

Mint’s $15.3 M golden dilemma: Was there a heist?
By Philip Ling , Canwest News Service
June 29, 2009

Gold coins that will be melted down at the Royal Canadian Mint in Ottawa. The Mintsays it can’t account for approximately $15.3 million in precious metals that seems to have vanished from its inventory in the 2008 fiscal year, according to a third party review conducted by Deloitte and Touche.

OTTAWA — The distinct possibility that precious metals may have been stolen from the Royal Canadian Mint is "inexcusable," the federal minister responsible for the Crown corporation said Monday.

The findings of a long-awaited external audit, released earlier in the day, concluded that $15.3 million in missing gold is not the result of accounting or bookkeeping errors, raising even more questions about the whereabouts of the metals from what has been touted as one of the most secure facilities in Canada.

"The mint’s still unexplained loss of precious metals is inexcusable," Transport Minister John Baird and Minister of State for Transport Rob Merrifield, whose department is responsible for the mint, said in a joint release. "The mint will be held accountable."

The Royal Canadian Mint says the precious metals seem to have vanished from its inventory in the 2008 fiscal year, according to the third-party review conducted by Deloitte & Touche LLP.

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Jim Sinclair’s Commentary

Just when you think it is hard for things to get worse, a new problem surfaces.

UN official warns ‘missing link’ in global financial system growing more critical
Saturday, June 27, 2009
Edith M. Lederer

UNITED NATIONS: The UN trade chief said Thursday there is a "missing link" in the international financial system that is becoming more critical as the global economic crisis drags on: What happens when a country is bankrupt and can’t pay its debts? Supachai Panitchpakdi told a UN financial summit he is trying to help 90 poor countries with vulnerable economies, many with debts beyond 100 percent of the value of their overall economy, as measured by the gross domestic product.

Developing countries at the three-day conference, which ends Friday, have been pleading for more money to shore up ailing economies hard-hit by a crisis they didn’t cause.

Prime Minister Stephenson King of St. Lucia, one of 10 world leaders at the summit, urged the international community for a "significantly larger amount of grant funding" in the next two years, saying: "We simply cannot afford the stranglehold of additional debt." He said there is no international court to deal with the bankruptcy of a country so every nation would have to rely on its own national rules and regulations.

Panitchpakdi, secretary general of the UN conference on Trade and Development, cited Chapter 11 of the United States Bankruptcy Code, which permits all businesses to reorganize under US bankruptcy laws, as a possible model – a view echoed by Martin Khor, executive director of the South Center, a Geneva-based research organization with 50 developing countries as members.

"We are afraid that many developing countries will be plunged into a new debt crisis which would be very unfortunate," Khor said, noting that the World Bank recently said 40 countries are facing serious debt problems as a result of the global economic meltdown.

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Jim Sinclair’s Commentary

The pace of building here, although down from the Olympics, is still humming along. The mood of the people is the antithesis of the US.

China will drive commodities super-cycle: Scotiabank
John Morrissy, Financial Post  Published: Monday, June 29, 2009

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OTTAWA – Canada’s key commodities have reversed their dramatic declines and are headed for years of renewed strength as the Chinese "dragon" rekindles an Asian-led super-cycle in basic materials, says Scotiabank commodities expert Patricia Mohr.

Driven by record levels of imports into China, Scotiabank’s commodity-price index climbed 2.2% in May from April, the month in which the 45% slide from July 2008 peaks came to an end, according to Ms. Mohr.

"China’s dragon has breathed life back into commodity prices," Ms. Mohr said.

Moreover, China’s economy is prospering despite weakness in the G7 countries that constitute the Western world’s industrial powers, she said.

"If you look at what has happened in terms of China’s industrial activity in the past three months (up 8.9% year-over-year in May alone) it obviously has at least partly decoupled from the G7."

Though the notion of decoupling, in which Asian economies prosper irrespective of Western growth, fell out of favour in last year’s sell-off, as did a commodities "super-cycle," extending over many years and caused by a structural change in the world’s economy, Ms. Mohr is convinced they will be the prevailing trends for years to come.

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Jim Sinclair’s Commentary

This is what preparation for a major dollar decline looks like.

China Plans to Start Yuan Settlement With Asean Soon (Update3)

June 30 (Bloomberg) — China may soon allow companies in its southern provinces of Yunnan and Guangxi to use yuan to settle cross-border trade with Southeast Asia to reduce foreign- exchange risks, a government official said.

The scheme will protect exporters from swings in currencies and help promote trade with the 10-nation Association of Southeast Asian Nations, Nong Rong, vice secretary general at the China-ASEAN Expo, said today. The trade fair, sponsored by China and Asean countries, has been held annually since 2004 in the city of Nanning, capital of Guangxi province.

“Preparation work for the pilot programs are progressing smoothly,” Nong, also deputy head of the Guangxi government bureau organizing such exhibitions, told reporters in Nanning. “Some companies that were deterred by foreign-exchange risk may now seek to expand overseas as the risks have been reduced.”

China, the world’s third-biggest economy, is seeking to make it easier for companies to do business in yuan and to expand trade with so-called Golden Triangle nations after the global recession choked sales to the U.S. and Europe. Chinese officials, including President Hu Jintao, have called for reducing its dependence on the dollar and the creation of a new global reserve currency.

The People’s Bank of China has agreed to provide 650 billion yuan ($95 billion) to Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea through so-called currency- swaps. Yesterday, the central bank signed an agreement with Hong Kong to allow the settlement of cross-border trade in yuan.

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Jim Sinclair’s Commentary

The probability of an Israeli attack on Iran grows as the US moves away from Israel. Take away the umbrella effect and self preservation can cause rash actions.

Israel Prepares F-15 Jets for Long Range Attack
by Gil Ronen

(IsraelNN.com) The Israel Air Force’s F-15 fleet is undergoing an upgrade, with systems that make it better equipped for complex long distance attack scenarios. The systems are being installed in both the F-15 and the F-15I — a model of the F-15 that was developed by its U.S. manufacturer specifically for the IAF.

According to IDF journal BaMachaneh, the F-15I model is currently being fitted with two new systems – one called “Barad Pelada” (“Steel Hail”), and another named Lightning.

The Barad Pelada advanced weapons system has been operational in the IAF’s F-16s for almost four years, but had to be modified in order to fit the F-15.

Barad Pelada is an advanced Israeli armament that operates like a smart bomb. “The system is unique in that it is able to plan the bombing in an accurate way by identifying the target from above,” a knowledgeable source in the IAF explained. “After the identification, the system carries out guidance to the target and only then is impact made.”

The Lightning advanced attack system has also been in use in the IAF’s other jets. Until now, the F-15I jets had to rely on the older Inbar system, which used to be fitted in all of the IAF’s jets but was gradually phased out.

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Jim Sinclair’s Commentary

Talk only? Shame on those pin heads that call themselves talking heads.

This is serious. This is real. This is the death of the US dollar.

128 days to go.

China Allows Trade Settlement in Yuan in Hong Kong (Update2)
By Nipa Piboontanasawat and Bob Chen

June 29 (Bloomberg) — China approved use of yuan to settle cross-border trade with Hong Kong, part of a drive to broaden the use of the currency and reduce reliance on the U.S. dollar.

Hong Kong Monetary Authority Chief Executive Joseph Yam said he hopes the first transactions will start next month after signing an agreement with People’s Bank of China Governor Zhou Xiaochuan at the city’s airport today. Zhou said the program would reduce foreign-exchange risks and transaction costs.

China is promoting greater use of the yuan in international trade and finance after Premier Wen Jiabao in March expressed concern that a weakening dollar will cause losses on holdings of U.S. assets. The greenback slumped on June 26 in New York after the People’s Bank of China renewed its call for a new global reserve currency to replace the greenback.

“It’s an important step to make the yuan an international currency,” said Fang Ming, an analyst in Beijing at Bank of China Ltd., the nation’s biggest foreign currency trader. “In the long-term, the world reserve currency system will consist of several major currencies, including the yuan and the euro, instead of just the U.S. dollar.”

The Dollar Index that measures the currency’s performance against six trading partners rose 0.4 percent today, after dropping 0.7 percent on June 26. Zhou told reporters in Basel yesterday that the nation won’t alter the composition of its $1.95 trillion in foreign-currency reserves suddenly. U.S. President Barack Obama needs the support of China as his government tries to spend its way out of a recession.

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Jim Sinclair’s Commentary

From China, allow me to assure you that the following is not talk. It is a call for action. 128 days left to go.

Beijing Formalizes Call for New Reserve Currency
JUNE 29, 2009

BEIJING — China’s central bank reiterated its call for the creation of a new international currency that could replace currencies such as the dollar in countries’ official reserves.

In its annual report on financial stability, issued Friday, the People’s Bank of China said the country will push reform of the international currency system to make it more diversified and reasonable. While it didn’t specifically target the U.S. currency, it said it aims to reduce over-reliance on the current reserve currencies, of which the dollar is the biggest.

"To avoid the shortcomings of sovereign credit currencies acting as reserve currencies, we need to create an… international reserve currency that can maintain the long-term stability of its value," the PBOC said.

The report, a lengthy document that addressed a broad range of issues, reiterated a proposal made by PBOC governor Zhou Xiaochuan in March to use Special Drawing Rights, the synthetic currency developed by the IMF, as a super-sovereign reserve currency. That proposal, made just before the G20 summit in London earlier this year, appeared in an essay authored by Mr. Zhou and posted on the PBOC’s Web site.

The call for a new global reserve currency was among a host of factors exerting pressure on the dollar Friday. The U.S. currency fell during New York trading against the U.K. pound, Australian dollar, yen, Swiss franc and euro.

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Posted at 6:51 PM (CST) by & filed under Jim's Mailbox.

Jim,

BIS warns about risk of inflation.

I wonder if the BIS is not used to warn politicians to keep central banks independent from political interference.

Unfortunately, I believe this won´t happen as we have seen lately.

Regards,
CIGA Christopher

Dear CIGA Christopher,

Central Banks will fight the market pull on interest rates via Quantitative Easing all the way to infinity if required.

Regards,
Jim

BIS Sees Risk Central Banks Will Raise Interest Rates Too Late
By Simone Meier

June 29 (Bloomberg) — The Bank for International Settlements said there’s a risk central banks will raise interest rates and withdraw emergency liquidity too late, triggering inflation.

History shows that policy makers “have a tendency to be late, tightening financial conditions slowly for fear of doing it prematurely or too severely,” the BIS, which oversees central banks, said in its annual report published today in Basel, Switzerland. “Because their current expansionary actions were prompted by a nearly catastrophic crisis, central bankers’ fears of reversing too quickly are likely to be particularly intense, increasing the risk that they will tighten too late.”

Central banks around the globe have lowered borrowing costs to record lows and injected billions of dollars into the financial system to counter the worst recession since World War II. While some policy makers have stressed the need to withdraw the emergency measures as soon as the economy improves, the Federal Reserve, Bank of England, and European Central Bank are still in the process of implementing asset-purchase programs designed to unblock credit markets and revive growth.

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Jim,

Just a mere 31,000 in laid off workers to start. That’s just one state. I’m here in PA. There are more bailouts as far as the wallet can see.

CIGA BJS

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

Dear Friends,

It has been a busy day here. China is not just talking, but preparing for what we know is coming in 127 days.

I am entirely on the other side of your clocks so I will sign off for today. I will post in your evening time.

Don’t let the goons get you down. Their season is over even if they do not yet know it.

Good night.

Jim

Posted at 2:05 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

I am not sure what to make of today’s price action across a wide variety of commodity markets as it was one of the more bizarre sessions I have seen in some time. Considering the price action the last few months, that is saying something.

Last evening crude oil put on some sort of inexplicable price movement driving all the way to $73.38 in Asian trading on EXTREMELY HEAVY volume. Traders all across the globe were at a complete loss trying to figure out what was going on. Then as trading moved into the West, price began to retreat until it hit New York where it promptly collapsed over $2.00 a barrel all the way back down to $69.00.

Gold too was whipped around violently and as can be expected, was knocked flat on its rear in New York trading once again.

Some of what was occurring was probably related to end of month and end of quarter book squaring by various hedge funds but even at that, I am still at a loss to explain what happened in crude oil or why. It seemed that when crude got the rug pulled out from under it, buying gold evaporated and the usual suspects were able to pound it down once again.

I am going to therefore refrain from drawing any inferences from today’s price action in gold because there are simply too many weird price movements today across so many markets that I run the risk of looking like a complete fool in trying to come up with some sort of intelligent comment on its behavior today.

I will say that technically gold is still mired in a sideways chop with yesterday’s stochastic buy signal being negated by today’s poor price action. Sometimes I swear that someone with lots of money to spit away reads this site just to have some “fun” with us.

It did not help gold any today also for the grain market to get a very surprising bearish acreage report for corn. That took it limit down and pulled down wheat and even the beans along with it. With the grains moving sharply lower and the energy sector getting pulverized, gold had little chance of moving higher especially with the dollar once again miraculously managing to move higher (must be that cap and trade bill which will be so helpful to the average American consumer).

Let’s see what happens tomorrow and go from there. Having to sit here day after day and watching this utterly useless and meaningless price action in the screwed up markets that now exist, is becoming more and more a complete waste of time. Bonds are up; bonds are down; then they are up again. Stocks are up; stocks are down; then they go back up again. The Dollar is up; the Dollar is down; then it goes up again… this is what happens when monetary officials decide to play games in the markets and “stabilize” them.