Posted at 2:15 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

There appears to be a deadly contest occurring in the Dollar market over the 76 level on the USDX. As I have mentioned in my prior commentary, a closing downside breach of 76 and the USDX will promptly drop to 74. That will be enough to allow gold to shoot to $1,030 and take out that level. Once that level gives way on a close, momentum funds will flood into the gold market overwhelming the ability of Goldman and Morgan to suck down all the gold bids into their magic price capping box and we should see an acceleration higher. I am not sure who is supplying the bid to the Dollar to attempt to prevent this but their footprint is evident on the hourly charts. There was nothing in yesterday’s FOMC statement that was the least bit Dollar friendly.

One of the factors working against the Dollar is persistent strength in the Yen which continues moving higher with nary a peep out of the Bank of Japan or the Ministry of Finance. That it has been doing so is all the more remarkable considering the attention that the yen garners from those two quarters. As a currency trader I can remember more than a few occasions scanning the wire services in the wee hours of early morning for comments from those folks in an attempt to glean the level of the yen above which they would foray forth to beat us speculators into submission. Based on their silence one can only come to the conclusion that the Dollar/Yen level is losing its fascination with the monetary authorities in Japan who now appear to be looking across the water at China and further over to India as their future financial interest centers. Could it be that the 51rst state of the Union is “seceding” from Uncle Sam’s fiefdom as it witnesses the implosion of US economic might? I think so. After all, outside of the US everyone and their mother can see the handwriting on the wall detailing the demise of US economic might. Self interest still rules supreme not only in the individual but among nations. Japan is wisely doing what is in its long term financial interest.

A point of interest – the British Pound stinks to high heaven right now which is why gold priced in those terms continues to stay firmly above the 600 pound level. Britain’s currency is suffering from the same fate as the US Dollar – its masters are deliberately attempting to pull the rug out from beneath it so as to cheapen their exports on the global market. The bank of England’s governor as much as said so early this morning when he stated that a weak pound would help rebalance the UK economy. What is this – FOMC from across the pond? Yesterday we get the Fed abandoning the Dollar and today we get the BOE abandoning the Pound. Who is next? Is it any wonder why British investors are flocking to gold? A point of reference – the all time high in gold priced in BP terms at the PM fix was 690.353 back in February of this year. Today’s PM fix was 626.979.

Gold ran into a bout of selling as the equity markets followed through on yesterday’s technical sell signal which caused the usual knee jerk rush into Treasuries. That ran up the Dollar which brought in the hedgie algorithms and commodities began to get sold down. Crude oil in particular was rapped dropping $3.00 as I write this. With weakness in crude and a stronger Dollar, combined with option expiration, gold was taken lower and was unable to hold the $1,000 level. Seasonally we are into gold’s strongest time of the year however and once the fund long liquidation runs its course and support is established, it will resume its uptrend.

Technically gold is still attracting buyers down in that same zone that has brought them in since early September. As long as that holds, it will work sideways and consolidate while it waits for the next shoe to drop on the greenback. If the mid 990’s fail to stem the selling, then it will fall another $10 or so down to a more formidable support level. As Jim has said so often, just watch the Dollar to see what gold will do next.

The HUI is hovering right around that former resistance zone near 404 which is providing support for now. A bounce before the close up and away from 404 – 405 will establish that level as a floor and send it into more of a consolidative type trade. A failure there will set up a test of 385 or so on the downside.

There is a good chance that if equities continue to fall, we will see more “flight to safety” and out of commodity orders coming into the markets. The hedgies and the index funds have pushed a lot of hot money into these markets as fear of inflation has them looking for shelter from the collapsing Dollar. Any bear market flips north in the Dollar that might arise out of delays in inflationary forces, will see some of that money flow out of commodities and into bonds. Gold had recently been acting as a safe haven play with more and more investors growing nervous over the continued proliferation of paper debt to provide them a store of wealth. For the earlier part of this year, gold was trading in tandem with the “we love risk” or “we hate risk” psyche of traders/investors. When risk was in, gold was in. When risk was out, gold was considered risky and was sold. That changed a few weeks ago. We will watch how gold handles this situation should the equity markets move lower during October, a time in which they have a tendency to do just that. If its safe haven status is intact, it will find eager buyers on any price retracements. Again, just to repeat, gold’ s seasonal tendencies favor upside action into the 4th quarter.

Technically the Dollar has been showing some bullish divergence on the daily chart and is trading above the 10 day moving average. That is resulting in short covering which might be able to push it up closer to 77.30. Very formidable resistance for the greenback lies centered in the region around 78.

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 8:36 PM (CST) by & filed under Jim's Mailbox.

Jim,

I’ve bought the compendium so I hope you can steer me in the right direction if you cannot answer the question.

I understand that derivatives (cds and other derivatives) is a huge market with many old contracts outstanding. I understand they are not transparent. I understand counter-party risk. I understand that they were “put on” by professionals with the view that they were mostly riskless for themselves.

So given that, where are the weak points? What can we look to for signs that this market IS imploding?

I read lots of articles with wailing and gnashing of teeth saying derivatives are terrible and will bring about the end of the world. However, I have yet to see someone articulate HOW it may happen. I have yet to see someone talk about the weaknesses of the system.

It would seem to me that the size of the derivative market would mean that something HUGE would have to happen to bring down a part of the system. What would some of those somethings be? Do we need to predict a black swan event or observe a black swan event to feel the negative effects?

Thanks for your help in pointing me in the right direction.

CIGA Don G.

Dear Don,

The Fed and Treasury have undertaken policies to insulate the financial system from the failure of special performance contracts which are also known as OTC derivatives.

In answer to your question, let’s review what the immediate effect of the meltdown of the securitized investment vehicles backed by mortgages as a result of the end of the housing boom was.

As the backing of these difficult to value assets came into question, all the institutions holding them and the many holding all forms of wagers made thereupon had to face the losses because of mark to market accounting rules. Many institutions were financially on the ropes as their asset values found no market price available to what they called their assets.

How do you value packages of different types of mortgages made on different types of properties to different credit capable parties? It is simply a guess at best. There were no bids for them, and still in the main there are no bids of merit.

When you ask what a systemic failure of OTC derivatives would look like, consider a financial world full of promises of performance such as paying you if you lose money on a bond position due to bankruptcy that simply says to you get lost when you ask for payment. Now think of hundreds and thousands of different obligations to you that simply say buzz off when settlement in your favor is requested. Think of bankruptcy everywhere in every type of corporation from a GMAC type to your local town and village because in search of better returns and bigger profits they entered into items they did not understand, accepting the distributor’s academic presentation of a fool proof investment. That picture would approach what a failure of the OTC derivative market would look like. It would be the end of the world financially, leaving what remains after a star goes super nova – a black hole.

Since the Fed and Treasury have moved to insulate the financial industry from the above, knowing the present recovery to be at best shallow but more likely an illusion, understand that the West is on a path to HYPERINFLATION that cannot be altered no matter what. Any talk, such as today of draining liquidity or what the G20 will say soon, a united world bank effort to fight inflation is total hot air designed to keep the social order.

The die is cast. This time they have done it and we are all screwed.

Unfortunately (and I mean it most sincerely) there is no practical method of reversal, nor is there any real will to reverse QE procedures, but rather there is a pressing need now to do more and more of what has already taken place.

We have passed the threshold of "This is it." All statements to the contrary are well intentioned lies.

Now that I am on the subject I might be able someday in the future to tell you the real inside on why China novated the OTC derivatives sold to their parastatal corporations. They are in the right even though it is hard to understand without knowing the facts of the matter. The situation either has been, or will shortly be negotiated to closure.

Respectfully yours,
Jim

 

Jim Sinclair’s Commentary

Look what I found in my email box this evening. I knew Weiss’s father when we both were at 2 Wall Street. Wasn’t the kid a super deflationist?

Dear JAMES,

clip_image001The U.S. dollar resumed its swan dive overnight, hitting brand-new, one-year lows.

Meanwhile, gold — the world’s ultimate dollar hedge — surged nicely to within an eyelash of its all-time high.

But it should come as no surprise that global investors are beating the dollar like a red-headed stepchild.

After all — they know that U.S. Treasury Chief Timothy Geithner is going panhandling this week — begging and borrowing every penny he can to fund Washington’s precedent-shattering $1.6 trillion budget deficit.

Today, Geithner will rewrite the history books by dumping an all-time record $43 billion in new U.S. Treasuries on the market in a single day.

PLUS, tomorrow and on Friday, Geithner will return to the trough, borrowing an additional $69 billion to keep the lights on in Washington.

That’s a total of $112 billion in U.S. Treasury borrowing in just three, short days!

This is truly alarming: If you’re like me, you can remember a time not too long ago when U.S. Treasury borrowing was less than $112 billion for an entire year. Now, we’re borrowing that much in less than one week!

I wish that was the worst of it. It isn’t: So far this year, Geithner has borrowed a mind-boggling $1.41 TRILLION to fund Washington’s debt addiction — nearly THREE TIMES MORE than the Treasury had borrowed at this time last year.

And still, this is only the beginning: The Congressional Budget Office (CBO) has warned that Obama’s budget will add nearly $10 trillion in new government debt over the next ten years.

If the CBO is correct, our national debt will soar to well over $21 trillion by 2019. That’s more than double the value of all the goods and services our economy now produces in a whole year!

Meanwhile, over at the Federal Reserve, “Helicopter Ben” Bernanke is printing unbacked paper dollars like there’s no tomorrow.

Yesterday alone, in his ongoing attempt to keep Geithner’s precedent-shattering borrowing spree from sending interest rates into the stratosphere, Bernanke had to print more than $4 billion just to BUY treasuries.

THIS is why the U.S. money supply is skyrocketing! THIS is why sophisticated investors worldwide are recoiling in horror.

Protect yourself now or you’ll be kicking yourself later!

The plain truth is, the value of your money — your buying power and your standard of living are being sacrificed on the altar of Washington’s debt addiction.

But if you make the right moves beginning immediately, you still have time to shore up your financial defenses. You can shield yourself, your family and your savings and investments from disaster as this great dollar decline crushes the value of your money.

More than that: There are many ways to harness this historic convulsion to keep your wealth growing.

That’s why I will be presenting a complimentary online seminar entitled “Washington’s Secret War on the Dollar: Protect Yourself and Profit” — in two weeks; on Tuesday, October 6, 2009.

My mission is clear: To help make sure you have the knowledge and the specific recommendations you need to insulate your wealth and to keep it growing as this great dollar disaster unfolds.

This online briefing is absolutely free for you — part of our ongoing commitment to help you sidestep emerging hazards to your wealth and profit no matter what the economy throws at you next.

I’ll give you the clear, concise, unhedged answers to your most pressing questions about this crisis now.

Right off the bat, I’ll give you my shocking update on this great global war on the value of the dollar …

Weiss Research, Inc. 
15430 Endeavour Drive
Jupiter, FL 33478

Posted at 5:59 PM (CST) by & filed under In The News.

Dear CIGAs,

There are a number of important points to be made here:

1. Similar decisions have occurred in other states.

2. This is extremely important, but not necessarily a landmark.

3. The attempt at appeal will be backed by unlimited funds because of the serious ramifications in this state.

4. State by state, this exact decision is taking place and surviving the gruelling appeals processes.

5. This type of decision erodes the very fabric of the Securitized Investment Vehicle backed by a grouping of mortgages.

6. Eventually the screams of the public will be heard by state judges that depend upon the electorate.

7. From a modest kindling fire this move will grow into a conflagration of anti Wall Street, anti financial people. Attorneys will begin to seek these easy slam-dunk cases as a large revenue generators.

8. Between the error of singular mortgages being used in multi SIVs, the disaster of paperwork behind the mountain of mortgages made from 2006 to 2008, state laws on simple things like notary seals on documentation, and the requirement of having a legal standing for which to take the action (which servicers DO NOT), SIVs will be valued as below junk assets. These pure "legacy assets," as they are now called, are a noose around the neck of any institution holding them including the Federal Reserve.

Landmark Decision: Massive Relief for Homeowners and Trouble for the Banks

A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they need to avoid foreclosure. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically and tracks changes in ownership. The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose – on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS. Over half of all new U.S. residential mortgage loans are registered with MERS and recorded in its name. Holdings of the Kansas Supreme Court are not binding on the rest of the country, but they are dicta of which other courts take note; and the reasoning behind the decision is sound. 

Eliminating the “Straw Man” Shielding Lenders and Investors from Liability

The development of “electronic” mortgages managed by MERS went hand in hand with the “securitization” of mortgage loans – chopping them into pieces and selling them off to investors. In the heyday of mortgage securitizations, before investors got wise to their risks, lenders would slice up loans, bundle them into “financial products” called “collateralized debt obligations” (CDOs), ostensibly insure them against default by wrapping them in derivatives called “credit default swaps,” and sell them to pension funds, municipal funds, foreign investment funds, and so forth. There were many secured parties, and the pieces kept changing hands; but MERS supposedly kept track of all these changes electronically. MERS would register and record mortgage loans in its name, and it would bring foreclosure actions in its name. MERS not only facilitated the rapid turnover of mortgages and mortgage-backed securities, but it has served as a sort of “corporate shield” that protects investors from claims by borrowers concerning predatory lending practices. California attorney Timothy McCandless describes the problem like this:

“[MERS] has reduced transparency in the mortgage market in two ways. First, consumers and their counsel can no longer turn to the public recording systems to learn the identity of the holder of their note. Today, county recording systems are increasingly full of one meaningless name, MERS, repeated over and over again. But more importantly, all across the country, MERS now brings foreclosure proceedings in its own name – even though it is not the financial party in interest. This is problematic because MERS is not prepared for or equipped to provide responses to consumers’ discovery requests with respect to predatory lending claims and defenses. In effect, the securitization conduit attempts to use a faceless and seemingly innocent proxy with no knowledge of predatory origination or servicing behavior to do the dirty work of seizing the consumer’s home. . . . So imposing is this opaque corporate wall, that in a “vast” number of foreclosures, MERS actually succeeds in foreclosing without producing the original note – the legal sine qua non of foreclosure – much less documentation that could support predatory lending defenses.”

The real parties in interest concealed behind MERS have been made so faceless, however, that there is now no party with standing to foreclose. The Kansas Supreme Court stated that MERS’ relationship “is more akin to that of a straw man than to a party possessing all the rights given a buyer.” The court opined:

“By statute, assignment of the mortgage carries with it the assignment of the debt. . . . Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable. The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust.” [Citations omitted; emphasis added.]

More…

Mortgage Electronic Registration Systems Loses Legal Shield|
By Barry Ritholtz – September 23rd, 2009, 6:47AM

Back in April, we mentioned the The Mortgage Netherworld of MERS — the Mortgage Electronic Registration Systems.

MERS is the firm that (technically) holds 60 million US (securitized) mortgages on behalf of the actual buyers. They were created by a consortium of lenders in part to save money (on paperwork and recording fees) every time a loan changes owners. In the era of securitization, these savings amounted to billions of dollars.

But MERS also acts as a shield, making it all but impossible for many borrowers to deal directly with whoever happens to be holding their mortgage at the moment. As the NYT noted, it has “made life maddeningly difficult for some troubled homeowners.”

Now, the Kansas Court of Appeals has called foul. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. (Other than GlobalResearch.ca, I have yet to see any MSM coverage of the issue). The Court stated that MERS’ relationship is not that of a true party possessing all the rights given a buyer. Hence, the court ruled:

“By statute, assignment of the mortgage carries with it the assignment of the debt. . . . Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable. The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust.” (emphasis added).

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Jim Sinclair’s Commentary

Simply impossible. Started talks maybe, but that is all.

Put this into action and the legislative will dismantle the Fed so fast that they will get windburns.

Many writers laughed at me when I told you the substance of the July meetings with the Chinese. The Chinese want the above which is fundamentally the curtailment of QE, and the start of a Super Sovereign Currency dollar alternative in order to keep buying US Treasuries.

Note that last Thursday US Treasury Secretary Geithner opened the door for US Treasury support of the creation of a Super Sovereign Currency alternative.

The Fed today basically spoke about curtailing QE.

The SSGI will happen because governments adopt what they cannot stop. Draining the monetary expansion will simply NOT happen because it implies the end of QE. Why drain when you are doing QE.

Draining in the manner discussed in this pre G20 MOPE article with the demand for financing the Federal Deficit rising exponentially must result in long rates going wild on the upside.

This is total MOPE timed for the G20 meeting and the Fed keeping rates low indefinitely.

Any dollar rally or decline in gold on this is simply illusionary, short term and of no consequence.

F-TV will go wild with this one.

Fed Said to Start Talks With Dealers on Using Reverse Repos
By Liz Capo McCormick

Sept. 22 (Bloomberg) — The Federal Reserve has started talks with bond dealers about withdrawing the unprecedented amount of cash injected into the financial system the last two years, according to people with knowledge of the discussions.

Central bank officials are discussing plans to use so- called reverse repurchase agreements to drain some of the $1 trillion they pumped into the economy, said the people, who declined to be identified because the talks are private. That’s where the Fed sells securities to its 18 primary dealers for a specific period, temporarily decreasing the amount of money available in the banking system.

There’s no sense that policy makers intend to withdraw funds anytime soon, said the people. The central bank’s challenge is to decrease the cash without stunting the economy’s recovery and before it sparks inflation. Fed Chairman Ben S. Bernanke said in a July Wall Street Journal opinion article that reverse repos are one tool to accomplish that goal without raising interest rates.

“One thing the Fed has to figure out is if they can launch pilot programs without spooking the market and creating the perception that they are about to tighten,” said Louis Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm that specializes in government finance. “They are discussing things like accounting issues, and updating the governing documents to the volume of reverse repos the dealer community could absorb.”

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Jim Sinclair’s Commentary

This long anticipated currency advent is at hand, like it or not.

It is the SSCI which some powerful Asian participants are pushing for gold to be a part of the scheme.

The IMF is about to become the Western World Central Bank. The Fed is about to become a deflated cop, a relic of the past and an academic nobody.

New world currency order starts to unfold
Joe Prendergast
September 21. 2009 3:17PM GMT

The US dollar still retains a disproportionately large representation in international trade transactions, official reserves and exchange rate regimes.

This is largely due to the many institutional arrangements and incumbencies which remain from the Bretton Woods era of 1944 to 1971 when the gold-linked dollar provided the formal anchor for the world monetary system.

Now, though, this privileged, inherited status of the paper dollar is under threat from the falling relative economic size of the US and its cyclical influence and the scale of the excesses that very privilege has allowed.

Appropriately straddling the turn of the 21st century, the “borrowed” consumer decade of 1997–2007 may come to be regarded as the fin de siecle, marking a critical juncture in the drift away from the US dollar hegemony that has dominated the international financial system since the Bretton Woods regime ended in 1971.

Instead, we are on the road to a new, multilateral currency order.

As far back as the 1970s, in the earliest years of the floating rate regime when the US dollar declined rapidly in value after its link with gold was formally broken, its hegemony was under threat. But, back then, the US was still a net creditor nation and there was no obvious liquid alternative.

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Jim Sinclair’s Commentary

In light of today’s election of the US dollar by the us Federal Reserve (statement of holding short rates near zero) as the carry trade currency of choice, a review of the following is in order.

HSBC bids farewell to dollar supremacy
The sun is setting on the US dollar as the ultra-loose monetary policy of the US Federal Reserve forces
China and the vibrant economies of the emerging world to forge a new global currency order, according to a new report by HSBC.
By Ambrose Evans-Pritchard
Published: 7:14PM BST 20 Sep 2009

"The dollar looks awfully like sterling after the First World War," said David Bloom, the bank’s currency chief.

"The whole picture of risk-reward for emerging market currencies has changed. It is not so much that they have risen to our standards, it is that we have fallen to theirs. It used to be that sovereign risk was mainly an emerging market issue but the events of the last year have shown that this is no longer the case. Look at the UK – debt is racing up to 100pc of GDP," he said

Crucially, China and rising Asia have reached the point where they can no longer keep holding down their currencies to boost exports because this is causing mayhem to their own economies, stoking asset bubbles. Asia’s "mercantilist mindset" of recent decades is about to be broken by the spectre of an inflation spiral.

The policy headache was already becoming clear in the final phase of the global credit boom but the financial crisis temporarily masked the effect. The pressures will return with a vengeance as these countries roar back to life, leaving the US and other laggards of the old world far behind.

A monetary policy of near zero rates – further juiced by quantitative easing – is completely incompatible with circumstances in most of Asia, the Middle East, Latin America, and Africa. Divorce is inevitable. The US is expected to hold rates near zero through 2010 to tackle its own crisis.

More…

 

Jim Sinclair’s Commentary

There is a God!

Those that live by the sword, die by the sword. Those that play dirty tricks get tricked into the dirt. What goes around, comes around. Beware of instant Karma.

Former Moody’s Exec Blows Whistle on Bad Ratings: Is It a Smoking Gun?
Posted Sep 23, 2009 02:32pm EDT by Aaron Task

The hits just keep on coming for rating agencies, and not in the feel-good, Top-40 kinda way.

• Earlier this month, U.S. District Judge Shira Scheindlin ruled Moody’s and Standard & Poor’s could not claim first amendment protection because the ratings in question weren’t publicly disseminated. The ruling was specific to a $5.86 billion structured investment vehicle called Cheyne Finance, but could have broader legal implications.

• David Einhorn of Greenlight Capital told CNBC he’s short Moody’s and S&P’s parent McGraw Hill, calling Scheindlin’s ruling a "game changer." Meanwhile, Warren Buffett’s Berkshire Hathaway has sold about 8.8 million shares of Moody’s stock so far this year, according to regulatory filings.

• Last week, the SEC passed rules aimed at improving disclosures and reducing conflicts of interest for rating agencies.

The next blow is expected to come Thursday, when former Moody’s managing director turned whistleblower Eric Kolchinsky is scheduled to testify before Congress.

Kolchinsky worked for Moody’s for eight years and eventually oversaw the group responsible for rating securities known as collateralized debt obligations (CDO).

Today, Kolchinsky feels "some moral responsibility for the poor CDO ratings" issued under his watch, The Wall Street Journal reports. "I was part of the process that did all this damage, and I feel I should try to do something now to make sure it doesn’t happen again."

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Jim Sinclair’s Commentary

There will be a positive spin even though there is nothing positive here.

Drain liquidity? Who are they kidding?

U.S. Aug mass layoffs rise, manufacturing worst hit
Wed Sep 23, 2009 11:28am EDT

WASHINGTON (Reuters) – The number of mass layoffs by U.S. employers rose by 533 in August from July, with the manufacturing sector the hardest hit, Labor Department data showed on Wednesday.

The number of mass layoff actions — defined as job cuts involving at least 50 people from a single employer — rose to 2,690 last month, affecting 259,307 workers. That brought the total of mass layoffs so far this year to 21,184.

A total of 279 mass layoff events were reported in the manufacturing sector in August, the department said.

While the broader economy appears to be recovering from its deepest and longest recession in 70 years, unemployment continues to rise. There are fears rising joblessness could hamper the recovery.

The U.S. unemployment rate hit a 26-year high of 9.7 percent in August, and many economists expect it to peak above 10 percent early next year.

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Jim Sinclair’s Commentary

Drain liquidity? Who are they trying to kid?

The answer is you.

U.S. credit card defaults rise to record: Moody’s
Reuters
Wednesday, September 23, 2009; 2:17 PM

NEW YORK (Reuters) – The U.S. credit card charge-off rate rose to a record high in August, as more Americans lost their jobs, Moody’s Investors Service said on Wednesday, in another sign consumers remain under stress.

The Moody’s credit card charge-off index — which measures credit card loans that banks do not expect to be repaid — rose to 11.49 percent in August from 10.52 percent in July.

The index resumed an upward trend after declining in July for the first time in almost a year, vanishing hopes of stabilization in the industry after record high credit losses.

"We continue to call for a recovery of the credit card sector to begin once industry average charge-offs peak in mid-2010 between 12 percent and 13 percent," Moody’s said in a report.

Credit card losses usually follow the trend of unemployment, which rose in August to 9.7 percent, the highest level in 26 years. Moody’s estimated unemployment will peak next year at 10 percent to 10.5 percent.

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Jim Sinclair’s Commentary

The very reason for doing gold swaps is because they can be kept secret because they are not outright sales.

Of course the Fed has done gold swaps. Of course the purpose of a gold swaps, many with gold banks, is to hold down the price of gold.

However, even with gold swaps, once governments are on the other side of the cash gold market the Fed cannot and will not endeavour to stop the price with more swaps because they run the risk of having to swap it all out with the ever growing extreme counter party risk.

The Fed will not wage an all out gold war that it knows it is sure to lose. This is not paper gold we are talking about here when governments get involved. This is the hard stuff.

There is a huge difference. You are used to thinking paper gold. You cannot apply paper gold concepts to the cash gold market.

Should a counter party of a gold swap fail, it becomes an outright sale of gold which must be promptly reported.

Did anyone ever believe that there were no gold swaps with gold banks?

Federal Reserve Admits Hiding Gold Swap Arrangements, GATA Says

MANCHESTER, Conn.–(BUSINESS WIRE)–The Federal Reserve System has disclosed to the Gold Anti-Trust Action Committee Inc. that it has gold swap arrangements with foreign banks that it does not want the public to know about.

The disclosure, GATA says, contradicts denials provided by the Fed to GATA in 2001 and suggests that the Fed is indeed very much involved in the surreptitious international central bank manipulation of the gold price particularly and the currency markets generally.

The Fed’s disclosure came this week in a letter to GATA’s Washington-area lawyer, William J. Olson of Vienna, Virginia (http://www.lawandfreedom.com/), denying GATA’s administrative appeal of a freedom-of-information request to the Fed for information about gold swaps, transactions in which monetary gold is temporarily exchanged between central banks or between central banks and bullion banks. (See the International Monetary Fund’s treatise on gold swaps here: http://www.imf.org/external/bopage/pdf/99-10.pdf.)

The letter, dated September 17 and written by Federal Reserve Board member Kevin M. Warsh (seehttp://www.federalreserve.gov/aboutthefed/bios/board/warsh.htm), formerly a member of the President’s Working Group on Financial Markets, detailed the Fed’s position that the gold swap records sought by GATA are exempt from disclosure under the U.S. Freedom of Information Act.

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Jim Sinclair’s Commentary

Withdraw liquidity from the system? You have to be kidding.

The Fed and Treasury are on the doorstep of their next liquidity blast into the system.

Commercial Real Estate Is Next Bubble to Burst: Tishman
Published: Monday, 21 Sep 2009 | 4:10 PM ET

Commercial real estate is the "second shoe" to drop in hurting the economy, Daniel Tishman, chairman and CEO of the Tishman Construction Corporation told CNBC.

"We’re getting through the single housing real estate market OK but the numbers involved in commercial real estate in all sectors are staggering," Tishman said. "Trillions of dollars are involved in commercial loans. The roll over of those loans in the next 5-7 years is going to happen and the money just isn’t there for refinancing."

Tishman, whose company is one of the oldest construction firms in the US, said the industry needs government help.

"The TALF (Trouble Asset Loan Facility) program is about to end and it needs to be extended," Tishman said. "The government needs to come up with some creative programs to help out the industry."

Tishman said there’s a total amount of $3.4 trillion in commercial loans that needs refinancing, and many local banks are holding those loans.

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Jim Sinclair’s Commentary

Drain liquidity? You have to be kidding!

U.S. Debt Crisis May Cause ‘Fall of Rome’ Scenario, Duncan Says
By Patrick Rial

Sept. 23 (Bloomberg) — U.S. budget deficits will continue to pile up in the next decade, eventually reaching an unsustainable level that may result in an economic collapse, according to Richard Duncan, author of “The Dollar Crisis.”

The U.S. has little chance of resolving its deteriorating financial position because the manufacturing industry continues to shrink, leaving the nation with few goods to export, said Duncan, now at Singapore-based Blackhorse Asset Management.

In “The Dollar Crisis,” first published in 2003, Duncan argued that persistent current account deficits by the U.S. were creating an unsustainable boom in global credit that was destined to break down, resulting in a worldwide recession.

“The bad news is at the end of a 10-year period we’re still not going to have fixed the problem,” Duncan said in an interview in Hong Kong yesterday. “Eventually it will lead to high rates of inflation well down the line and really destabilize things to the point where there may be irreparable damage. A kind of ‘Fall of Rome’ scenario.”

The federal budget deficit will total $1.6 trillion this year, while combined shortfalls are forecast to total $9.05 trillion in the next 10 years, according to projections from the nonpartisan Congressional Budget Office.

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Jim Sinclair’s Commentary

Doesn’t anyone realize that it has all gone totally mad? Wall Street needs a lot of thorazine immediately.

This is greed without limit and is completely unreasonable.

Study shows U.S. bank CEO pay dwarfs rest of world
Wed Sep 23, 2009 10:43am EDT
By Steve Eder

NEW YORK (Reuters) – You wouldn’t know it by his pay stubs, but Jiang Jianqing heads the world’s largest bank.

Jiang, chairman of Industrial and Commercial Bank of China, made just $234,700 in 2008. That’s less than 2 percent of the $19.6 million awarded to Jamie Dimon, chief executive of the world’s fourth-largest bank, JPMorgan Chase & Co.

The contrast illustrates the massive differences in pay among the CEOs of the world’s top banks. The compensation of the CEOs of the largest U.S. banks towers above what’s paid to banking chiefs in other parts of the world, according to a Reuters analysis of pay at the 18 biggest banks by market value.

Excessive compensation at banks is expected to be discussed this week when the Group of 20 nations meets in Pittsburgh. But consensus on the issue remains a distant hope as there continue to be vast differences in how bankers are paid, from the CEO on down.

The United States is home to four of the nine largest banks in the world — JPMorgan, Bank of America Corp, Wells Fargo & Co and Citigroup Inc. It is also home to four of the six most handsomely rewarded bank CEOs.

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Posted at 1:57 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

“Kerplunk” – that awful sound was the Dollar wiping out the all the meager gains of the previous two trading sessions and then some. It managed to avoid crashing through the low from Thursday of last week but just barely. Should that level give way on a closing basis, it is very likely that we will see 74 on the USDX and $1,030+ on gold.

I am a bit surprised to see such aggressive greenback selling in front of the FOMC meeting and the G20 summit but it only serves to underscore how many eager and willing sellers are lurking out there waiting for blips in this strong downtrending market so that they can beat it back down from a higher level. Technically, this kind of action is foreboding with perhaps uneasiness in front of these upcoming events the only thing serving to keep the bottom from completely dropping out although from what I can see of the price action, it sure seems that no one is expecting any changes in the Fed’s “Easy Money” policy anytime soon. If you ask me, I think they are scared out of their collective wits to raise interest rates.

Regardless, the idiotic hedge funds who were busy throwing away everything yesterday because the Dollar bumped up slightly, were today falling all over themselves to buy the same stuff back once again. We have reached the point where we are no longer trading supply/demand fundamentals in the commodity markets but rather gyrations in the Dollar. Crude oil volatility is proof enough of that.

The strong intraday bounce off its lows in yesterday’s session proved to be a sign that strength was going to surface in the mining shares today as the HUI is strongly higher as I write this. I would like to see a close within the next two days above 435 to keep any aggressive sellers at bay. A drop below 405 would bring in momentum based selling.

Based on the action in the miners, and the price action in the broader equity markets in association with the Dollar, it appears that stock traders are focusing more and more on the inflationary aspects associated with a falling dollar. What else can explain a vertical rally of this nature in the S&P? The only fly in the ointment with this reasoning is that the bond market still refuses to fall off a cliff. Apparently bond traders and equity traders are not in sync as of yet. If the stock market is rallying as the perma bulls tell us because the economy has seen the worst and is on the mend, then apparently the bonds have yet to be informed of that fact or they would not be holding support at the bottom of the trading range.

Bonds look to me like they are unsure of what to do next. That market has been trapped in a broad sideways pattern for 4 months now with the falling Dollar providing selling resistance but fears in that pit of a weak economy providing downside support on sell offs. This is going to get resolved at some point although as to the exact timing of that, I am in the dark. All we can do is to station ourselves and watch the drama unfold.

Gold continues to run into overhead selling pressure courtesy of the bullion banks up near the $1,020 level as can be seen on the chart. That level will give way if the Dollar cannot hold above 76.

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 1:48 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

The concept utilized by the BIS to value OTC derivatives is "value to maturity," a computer program.

Now consider when evaluating a SIV backed by a mix of mortgages determined by the computer program. What will value to maturity REALLY be worth 5 or even 10 years from today? It isn’t possible to calculate, yet these are the values now adopted and blessed by the FASB.

Moody’s: Some Home Price Won’t Rebound Until 2030
Posted: September 19, 2009 at 8:07 am

Moody’s (MCO) forecasts that some home prices may not return to their pre-recession levels until 2030. This means that hundreds of thousands of Americans may find it impossible to sell their houses without making payments to their banks to cover underwater home loans.

MarketWatch reports that a new Moody’ housing forecasts says that “It will take more than a decade to completely recover from the 40% peak-to-trough decline in national home prices.”

In many parts of the country, which include large states like New York and Illinois, home prices will not rebound to 2006 levels until 2018 to 2022. In the states where prices have fallen the most, particularly California and Florida, values may not rebound until 2024,

The prediction, if correct, means that Baby Boomers and even some of their older children may not be able to sell home to help finance retirements. The use of homes to get equity loans will be out of the question. Some homeowners will have to give banks money to get out from under their houses, default because they cannot afford to sell their homes at a loss, or stay in homes that they no longer need.

The housing crisis, it seems, still has at least fifteen years to go and for some older Americans that is a lifetime.

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Jim Sinclair’s Commentary

MOPE works when the economic winds are at your back.

In the various ebbs and flows of a bull trend, maintaining the bull trend by MOPE convinces economic planners they have a foolproof tool. When the economic wind is in your face, as it is now, your plan is not foolproof.

Those that believe in MOPE will turn out to be foolish.

Breaking the Consumer: Exporting Empty Containers Declining. Consumer Credit is contracting at Rapid Pace. Is the Consumer Treadmill Showing Signs of Exhaustion?

If you know where to look, the American consumer is not buying into the U.S. Treasury and Federal Reserve great debt experiment.  Port traffic is still declining and indicators show no sign of a major resurgence.  If you look at the recent weak outbound pace of containers that are empty what we can expect is continued weak demand for imported consumer goods.  Given that most of our goods are imported, this is a bad sign for our local economy but also global economies that produce those goods.

It is rather startling that so little focus has been given to job creation.  21 full months into the recession and there is still no concerted effort on stemming the massive unemployment problem.  This issue is directly tied into the weak consumer demand.  The American consumer is not in a spending mood.  We can expand the access of credit available to banks but the access to credit is limited if they have no viable customers to lend to.  Apparently banks now realize that giving money to those with no income history or capacity to pay debt back was a bad move.  So why are they asking for so much liquidity even though they refuse to lend?  The answer unfortunately is that they are borrowing liquidity to patch up their own problems.  The American consumer is on their own.

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Jim Sinclair’s Commentary

I was in a hotel lounge in Canada with a man I respect, John Rubenstein.

The waiter brought over a container and asked me if I wanted peanuts. My answer to him was no thank you, I never play for peanuts.

Elephant hunting-Canadians jostle for Africa gold
Tue Sep 22, 2009 12:50pm EDT
By Pav Jordan

TORONTO, Sept 22 (Reuters) – Canadian miners are jostling for position in gold-rich Africa, chasing capital to fund new production as they wager gold prices will hold near-record levels for years to come.

Gold is trading at over $1,000 an ounce, several times what it was a decade ago, and miners, many of them Canadian, are looking to cash in by bringing new production on as soon as possible.

For many, that means mining in Africa, and brokerages are fielding calls from companies eager to finance work on the politically sensitive continent.

"If you want to go elephant hunting, you have to go to elephant country," Mark Bristow, the chief executive of London-based Randgold Resources (RRS.L), told investors in Toronto, repeating a favorite refrain in lauding Africa’s gold riches.

Bristow is in the midst of a major bid to build his company’s presence in central Africa, where risks run high, but potential rewards run higher.

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Jim Sinclair’s Commentary

Have you not heard this from me many times since this all started? Have I not told you that the major problem is OTC derivatives and they still remain as large and growing larger with nuclear potential?

What good is knowing all this if there is nothing on the face of the earth that this knowledge can do about it?

I often ask myself, why? Why do I know all this, but am powerless to do anything about it?

I am pleased if I can protect you, but what comes back to me is virulent hate from so many.

Derivatives Could Cause Another Meltdown: Mobius
Published: Monday, 21 Sep 2009 | 12:14 PM ET

Derivatives caused the market Armageddon of recent years and if left unchecked by global leaders, the same market could cause another catastrophe, Mark Mobius, executive chairman of Templeton Asset Management, told CNBC Monday.

When asked by a CNBC viewer what kind of Armageddon could be expected if the derivatives problem is not addressed, Mobius replied: “The same kind of Armageddon that we just had, what we just saw in the last few years has been caused by derivatives.”

The lack of liquidity, transparency, coupled with its sheer size means the derivatives market poses a major risk to financial stability, according to Mobius. The currency derivatives market is especially at risk of causing problems, but interest-rate derivatives also, he said.

Mobius thinks that global leaders meeting for the G20 summit in Pittsburgh next week should focus almost solely on the derivatives trade. Debates over how much bankers are paid in bonuses should be bumped down the agenda, he said.

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Jim Sinclair’s Commentary

Looks to me like the bright idea is to borrow back TARP and all of the acronyms.

There isn’t enough money in the banks compared to what might be and what is needed.

Can you imagine the credit rating of loans made to give Federally guaranteed money away via an agency that is so deep into the red that it will take a generation to earn back the funds?

FDIC considers borrowing cash from banks
Insurance fund that protects depositors is quickly running out of money
By Stephen Labaton
updated 6:25 a.m. ET, Tues., Sept . 22, 2009

WASHINGTON – Tired of the government bailing out banks? Get ready for this: officials may soon ask banks to bail out the government.

Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks.

The plan, strongly supported by bankers and their lobbyists, would be a major reversal of fortune.

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Jim Sinclair’s Commentary

Here is MOPE at its finest by a new United One World Central Bank (UOWCB).

Instead of just one country’s economy and market exploding, they all should together.

There is no practical means to accomplish what this article speaks of, however along with all the rest of the avalanche of pre-G20 meetings without agendas, it is as expected.

IMF Urges Central Banks to Prepare, Coordinate Exit Strategies
By Sandrine Rastello and Timothy R. Homan

Sept. 21 (Bloomberg) — Governments planning to withdraw financial-market support should first exit programs that guarantee bank liabilities and coordinate their moves with other countries to keep a level playing field, the International Monetary Fund said.

Bank-debt guarantees are potentially costly for public finances as governments assume credit risk, the lender said today in portions of its bi-annual Global Financial Stability Report. Extending such measures in some countries while unwinding them in others could favor some banks at the expense of others, disrupting capital flows, it said.

The Washington-based IMF, which has rescued economies from Pakistan to Hungary in the past year, is advising officials around the world not to withdraw economic stimulus programs too soon as they chart a path to sustainable growth.

“We are not indicating that central banks and governments withdraw at the moment,” Laura Kodres, a division chief in the IMF’s monetary and capital markets department, said today at a news conference in Washington. “They should have a well- defined and transparent strategy for when the time comes, the time when confidence is fully returned and removing the various interventions will not destabilize markets.”

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Jim Sinclair’s Commentary

You accept that Iran is officially helping. Do you accept that Pakistan is officially helping? You should.

U.S. says Pakistan, Iran helping Taliban
Army Gen. Stanley A. McChrystal, the U.S. commander in Afghanistan, in particular cites the ISI and the Quds Force.
By Greg Miller
September 22, 2009

Reporting from Washington – The U.S. military commander in Afghanistan says he has evidence that factions of Pakistani and Iranian spy services are supporting insurgent groups that carry out attacks on coalition troops.

Taliban fighters in Afghanistan are being aided by "elements of some intelligence agencies," Army Gen. Stanley A. McChrystal wrote in a detailed analysis of the military situation delivered to the White House earlier this month.

McChrystal went on to single out Pakistan’s Inter-Services Intelligence agency as well as the Quds Force of the Iranian Revolutionary Guard as contributing to the external forces working to undermine U.S. interests and destabilize the government in Kabul.

The remarks reflect long-running U.S. concerns about Pakistan and Iran, but it is rare that they have been voiced so prominently by a top U.S. official. McChrystal submitted his assessment last month, and a declassified version was published Sunday on the Washington Post website.

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Jim Sinclair’s Commentary

The US dollar exit program for all aspects of minerals continues every day.

China invests $850M in commodities trader Noble
Associated Press, 09.22.09, 12:49 AM EDT clip_image001

BEIJING — China’s sovereign wealth fund is buying an $850 million stake in Noble Group Ltd., one of Asia’s biggest trading houses, to expand its commodities investments.

China Investment Corp., which manages a portion of Beijing’s $2 trillion in foreign currency reserves, will own 12.91 percent of Noble after the deal, Hong Kong-based Noble said in a statement.

Chinese companies, flush with cash from the country’s economic boom, are investing in abroad in mining, oil, agricultural commodities and other resources in hopes of profiting from future increases in demand.

Noble and CIC plan to jointly invest in infrastructure assets and supply chain management related to Noble’s agricultural activities, the statement said. Noble’s assets range from Australian iron mines to Brazilian sugar mills and cocoa processing in Africa.

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Posted at 7:55 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

This is an article written by Ron Paul that fits in nicely with our discussion this evening on the USA’s need for China and if the Administration’s advisors can see that need is as critical as it is.

The Wall Street types who have no economic plan for the USA even up to a year away cannot work with or even understand a nation whose planning goes out a century.

All they want to do is sell them OTC derivatives.

Trade Wars and Protectionism are not Free Trade

Two weeks ago, both the administration and the Fed announced with straight faces that the recession was over and the signs of economic recovery were clear. Then last week, the president made a stunning decision that signals the administration’s determination to repeat the mistakes of the Great Depression. Much like the Smoot-Hawley Tariffs that set off a global trade war and effectively doomed us to ten more years of economic misery, Obama’s decision to enact steep tariffs on Chinese imported tires could spark a trade war with the single most important trading partner we have. Not only does China manufacture a whole host of products that end up on American store shelves, they are also still buying our Treasury debt.

One has to wonder why this course of action is being undertaken if the administration really believes its own statements about economic recovery. Why are they still trying to fix something they have supposedly already fixed? The most troubling thing is the rhetoric about free trade given to justify this. The administration claims it is merely enforcing trade policies and that this is necessary for free trade. This sort of double speak demonstrates a gross misunderstanding of free trade, economics and world history. Yet these are the same people the country trusts to solve our problems. This sort of thing should remove all doubt about the credibility of the decision makers in Washington.

The truth is this will hurt American consumers by driving up prices of tires and cars. This will also complicate matters for our already crippled manufacturing and agricultural industries, if and when China retaliates against US made products. Whatever jobs might be saved in the tire and steel industries here as a result of this protectionist measure will likely be lost in other American industries. It is even doubtful that those jobs will be saved, as cheap tires can be obtained from other places like Mexico instead. It is difficult to see any real winners among all the losers where trade wars are concerned. If Unions think this is beneficial to them, they are being penny-wise and pound foolish.

Free trade with all and entangling alliances with none has always been the best policy in dealing with other countries on the world stage. This is the policy of friendship, freedom and non-interventionism and yet people wrongly attack this philosophy as isolationist. Nothing could be further from the truth. Isolationism is putting up protectionist trade barriers, starting trade wars imposing provocative sanctions and one day finding out we have no one left to buy our products. Isolationism is arming both sides of a conflict, only to discover that you’ve made two enemies instead of keeping two friends. Isolationism is trying to police the world but creating more resentment than gratitude. Isolationism is not understanding economics, or other cultures, but clumsily intervening anyway and creating major disasters out of minor problems.

The government should not be in the business of giving out favors to special interests or picking winners and losers in the market, yet this has been most of what has consumed politicians’ attention in Washington. It has reached a fevered pitch lately and it needs to end if we are ever to regain a functional and prosperous economy.

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Jim Sinclair’s Commentary

This is true, but can Wall Street recognize and deal with it? I doubt it.

They are in denial because if you were awash in that type of money you would not be able to see anybody, nation, or situation as important to you.

Ego is made of dense dark matter

Without China, economic rebalancing won’t work
Mon Sep 21, 2009 4:54pm EDT
By Lesley Wroughton and Emily Kaiser – Analysis

WASHINGTON (Reuters) – If the United States is going to succeed in its push for more balanced global economic growth, it must convince China, Germany and other big exporters there is no going back to the pre-crisis boom times.

In calling for the Group of 20 to back its framework for global rebalancing at the Pittsburgh leaders summit this week, the United States is asking its big trading partners to abandon a strategy which paid off handsomely for years — namely making goods for export to seemingly insatiable U.S. consumers.

Now that the financial crisis has shown that even Americans have their spending limits, the United States is hoping the time is ripe to finally make some progress on an issue which has generated much talk but virtually no action.

It is not a risk-free tactic for U.S. President Barack Obama. If he expects the big exporters to change their ways, he will have to make good on pledges to address the worsening U.S. fiscal position, which means making politically unpopular choices about spending and taxes.

"The key question here is whether the rest of the world believes the United States is really going to stop being the consumer of last resort," said Fred Bergsten, director of the Peterson Institute for International Economics in Washington.

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Jim Sinclair’s Commentary

Martin Feldstein agrees with my position, as outlined to you on many occasions, that once Pandora’s Box of QE was opened it cannot be closed easily. There is no practical means to exit expansionary monetary policy without a total implosion worse than what occurred on the fall of Lehman Brothers.

Martin Feldstein: The G-20′s empty promises
It would be futile to believe G-20′s promises to rein in monetary and fiscal policies
Martin Feldstein / September 22, 2009, 0:53 IST

Talk about “exit strategies” will be high on the agenda when the heads of the G-20 countries gather in Pittsburgh a few days from now. They will promise to reverse the explosive monetary and fiscal expansion of the past two years, to do it neither too soon nor too late, and to do it in a coordinated way.

These are the right things to promise. But what will such promises mean?

Consider first the goal of reversing the monetary expansion, which is necessary to avoid a surge of inflation when aggregate demand begins to pick up. But it is also important not to do it too soon, which might stifle today’s nascent and very fragile recovery.

But promises by heads of government mean little, given that central banks are explicitly independent of government control in every important country. The US Federal Reserve’s Ben Bernanke, the Bank of England’s Mervyn King, and the European Central Bank’s Jean-Claude Trichet will each decide when and how to reverse their expansionary monetary policies. Bernanke doesn’t take orders from the US president, and King doesn’t take orders from the British prime minister (and it’s not even clear who would claim to tell Trichet what to do).

So the political promises in Pittsburgh about monetary policy are really just statements of governments’ confidence that their countries’ respective monetary authorities will act in appropriate ways.

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Jim Sinclair’s Commentary

Here is some interesting news from last week that seems to have gotten practically no coverage in the USA.

US backing for world currency stuns markets
US Treasury Secretary Tim Geithner shocked global markets by revealing that Washington is "quite open" to Chinese proposals for the gradual development of a global reserve currency run by the International Monetary Fund.
By Ambrose Evans-Pritchard
Published: 6:05PM GMT 25 Mar 2009

The dollar plunged instantly against the euro, yen, and sterling as the comments flashed across trading screens. David Bloom, currency chief at HSBC, said the apparent policy shift amounts to an earthquake in geo-finance.

"The mere fact that the US Treasury Secretary is even entertaining thoughts that the dollar may cease being the anchor of the global monetary system has caused consternation," he said.

Mr Geithner later qualified his remarks, insisting that the dollar would remain the "world’s dominant reserve currency … for a long period of time" but the seeds of doubt have been sown.

The markets appear baffled by the confused statements emanating from Washington. President Barack Obama told a new conference hours earlier that there was no threat to the reserve status of the dollar.

"I don’t believe that there is a need for a global currency. The reason the dollar is strong right now is because investors consider the United States the strongest economy in the world with the most stable political system in the world," he said.

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Jim Sinclair’s Commentary

My weekend only email address was bombarded by the usual suspects screaming bear on gold.

The following article might interest their black little hearts.

In their twisted little minds they must think if they can turn Sinclair bearish they win.

Gold Investing May Gain From Equity Flight, ETFS Says
By Millie Munshi

Sept. 21 (Bloomberg) — Demand for gold, which traded within 1 percent of a record last week, will rise on mounting concern that equity markets may decline, said William Rhind, ETF Securities Ltd.’s head of U.S. sales and marketing.

“Clients are getting nervous about the stock market and see the potential for a correction there,” Rhind, 30, said today by telephone from London. “That’s leading people to precious metals, and gold particularly, in a quality flight.”

Gold held in funds traded around the world by Jersey, Channel Islands-based ETF Securities Ltd., rose to a record 8.323 million ounces today. Assets under management at the closely held company’s U.S.-based gold fund, which began trading Sept. 9, rose to a value of $70.8 million, ETF Securities said.

Bullion has gained for eight straight years and jumped to a record in 2008 as financial turmoil boosted the metal’s appeal as an alternative asset. Speculative net-long holdings of gold futures rose last week to the highest level since at least 1993, the government has said. Before today, gold climbed 13 percent in the past year as the Standard & Poor’s 500 Index fell 11 percent.

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Jim Sinclair’s Commentary

China, Russia and the rest of the BRICs will bring the Super Sovereign Currency alternative to the G20 discussion. We have seen that developing over the last few weeks.

We know that the main thrust of the G20 where the West is concerned is banking regulations and a unified commitment not to withdraw from anti-deflationary, therefore inflationary, monetary stimulation prematurely.

It will be interesting to see the Fed comments for this month after the FMOC meeting under these circumstances.

The following reflects the most informed opinions on the banking regulation issue.

Why much of the G20 debate on banking reform is futile
What do we want from our banks? The answer might seem fairly obvious. First and foremost, we require safety for our money. That’s what banks were originally for. But these days we expect more than a simple safe deposit box. We also want our money to be put to good use, so that it can generate a return. Banks attempt to do so by lending the money out. Understandably, this can never be an entirely risk free process, but the "maturity transformation" of money thereby achieved is a vital part of any thriving, free market economy.
By Jeremy Warne
Published: 7:27PM BST 21 Sep 2009

Over the past two years, the banking system has failed in both these core functions. Will the mass of new banking regulation under discussion at this week’s G20 summit in Pittsburgh succeed in recreating the expected combination of safety for our money and the easily available credit economies need for growth and prosperity? From where I sit, it looks far from assured.

Sure enough, most of what’s proposed on leverage, capital and liquidity ought to ensure that banks are safer. But the measures proposed will also make credit scarcer and more expensive, as well as raising barriers to entry in an industry desperately in need of more competition.

There is a consequent trade off between safety and risk, which if it leads to permanently high unemployment and lower growth may not be as obviously desirable as it now seems. It is by no means clear how much of this stuff is really necessary, and certainly it would be counter-productive to impose it quickly. The effect would be to undermine the recovery and thereby further derail the banking system.

As ever with the G20, there is little agreement on the detail of what needs to be done. Countries still have subtly, sometimes dramatically, different views, depending on quite how impaired their banking systems are. On capital, everyone accepts there has to be more of it to cushion banks against bad debts, but how much more and what kind?

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Jim Sinclair’s Commentary

Put up whatever argument you want. There is no PRACTICAL MEANS by which the stimulation so far injected into Western economies can be withdrawn without a catastrophic trashing of both the economy and equity markets. The first to go would be CIT followed by whatever is left of the real economy.

"Option" mortgages to explode, officials warn
Thu Sep 17, 2009 7:49pm EDT
By Lisa Lambert

WASHINGTON (Reuters) – The federal government and states are girding themselves for the next foreclosure crisis in the country’s housing downturn: payment option adjustable rate mortgages that are beginning to reset.

"Payment option ARMs are about to explode," Iowa Attorney General Tom Miller said after a Thursday meeting with members of President Barack Obama’s administration to discuss ways to combat mortgage scams.

"That’s the next round of potential foreclosures in our country," he said.

Option-ARMs are now considered among the riskiest offered during the recent housing boom and have left many borrowers owing more than their homes are worth. These "underwater" mortgages have been a driving force behind rising defaults and mounting foreclosures.

In Arizona, 128,000 of those mortgages will reset over the the next year and many have started to adjust this month, the state’s attorney general, Terry Goddard, told Reuters after the meeting.

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Jim Sinclair’s Commentary

To some degree Russian MOPE, but to some degree also correct.

Back to the rouble
21/09/2009
Ed Bentley

The rouble is returning to favour as consumers and banks shy away from loans denominated in foreign currencies.

Before the crisis hit, many Russians favoured dollar-denominated loans due to lower interest rates and a strong exchange rate of 23.2 against the dollar but the rouble’s 40 per cent collapse by early February brought borrowers back to earth.

"A lot of people whose incomes weren’t very high have been squeezed," Joel Kornreich, Citibank’s head of consumer banking, said in a recent interview. "One, because of the devaluation of the rouble, and two, because of in a lot of cases employers have reduced salaries."

Now, Russians’ once insatiable demand for foreign denominated loans is changing as they seek to keep both income and payments in roubles.

"Not everyone always understood the currency risk, but there is a greater awareness now of these things," Kornreich.

Depositors swiftly changed their money into dollars last December when it became clear that the government and Central Bank would manage devaluation, but now the rouble is slowly strengthening they are turning away from the greenback.

"The magnitude of conversion from roubles into foreign currency has been very limited over the past few months," Renaissance Capital said in a recent report. "We expect confidence in the national currency to continue to recover in the coming months."

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Jim Sinclair’s Commentary

If he is charged his defense could be an embarrassment to many powerful people. That is a no-win, no-win situation.

Sometimes things can get out of hand even for the powerful.

BofA mulls options if CEO Lewis is charged
Charlotte Business Journal

Bank of America Corp. directors were to be briefed Monday on their options if Chief Executive Kenneth Lewis is charged with civil fraud, The Wall Street Journal reports, citing a person familiar with the situation.

The bank’s board recently confirmed a new succession plan in case it needs to quickly make a change in BofA’s leadership. The source told the newspaper the board stands behind Lewis, who joined the bank in 1969 and took the reins as CEO when Hugh McColl Jr. retired in 2001.

The news comes as BofA’s board elected DuPont Co. (NYSE:DD) Chairman Charles Holliday, 61, a director Monday. In addition, the board approved a resolution to set its size at 15 directors, down from 18. All board positions have been filled.

Charlotte-based BofA (NYSE:BAC) is under investigation by New York Attorney General Andrew Cuomo concerning its acquisition of Merrill Lynch & Co. Cuomo has subpoenaed five BofA board members to testify as part of his probe, the Journal has reported, citing a person familiar with the investigation.

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Jim Sinclair’s Commentary

That leaves the major US export to be the products of the temple of money changers.

President predicts it will take decades to revive declining U.S. manufacturing base
By Michael O’Brien – 09/20/09 04:11 PM ET

It will take decades to rebuild the steadily declining manufacturing base in the United States, President Obama said this weekend.

While the president noted that the manufacturing sector in the economy has shown signs of improvement, but suggested it would take 20 years or more to rejuvenate U.S. manufacturing, and the Rust Belt economies that depend on it.

"If you think about what’s happening in Ohio and the manufacturing base that employed so many people, the decline in that sector of the economy took decades," Obama told the editors of the Toledo Blade and Pittsburgh Post-Gazette in an interview.

"It didn’t start last year, it’s been going on for two decades, and reversing that and rebuilding it is going to take two decades, as well," Obama said, previewing the G-20 meetings this coming week in Pittsburgh.

The president argued that the summit, which is expected to focus intently the reform of global financial regulations, would lay the groundwork for the next two decades’ work in Ohio, Pennsylvania, and other states hit hard by a decline in American manufacturing.

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Jim Sinclair’s Commentary

Therefore Pakistan is the most dangerous place on the Earth. How long have I been telling you this?

Qaeda’s training area in Pakistan is ‘the most dangerous spot on the map’
BY JAMES GORDON MEEK IN WASHINGTON AND HELEN KENNEDY 
DAILY NEWS STAFF WRITERS
Monday, September 21st 2009, 4:00 AM

The lawless area between Pakistan and Afghanistan – where an Afghan terror suspect arrested in Denver admitted he was trained by Al Qaeda – has been called "the most dangerous spot on the map."

If the United States suffers another 9/11-style attack, experts expect it will be born there, in the region known as theFederally Administered Tribal Areas.

"If the United States is going to get hit, it’s going to come out of the planning that the [Al Qaeda] leadership in the FATA is generating," Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, said in June 2008.

A Center for Strategic and International Studies report this year described the area as a "witches’ brew of terror and militancy" that is now ground zero of the U.S. war against extremism.

About 3 million Pashtun tribesmen – along with 1 million Afghan refugees – live in the FATA region, which is roughly the size of Massachusetts. Chief terror suspect Najibullah Zazi and his father, Mohammed Zazi, also under arrest, are Pashtuns from there.

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Jim Sinclair’s Commentary

The most important news today is the Secretary of the US Treasury suggesting a study on US Federal Reserve Governance and Structure.

The US Federal Reserve rejected this suggestion.

There is a battle between the Fed and the White House that will end in either QE to infinity or a dismantling of the Fed.

Ron Paul, who ran for president and did not get much more than a few paragraphs in the media, is now the poster boy of auditing the Fed.

I would say he is being used, but does it matter?

Ostensively, Gold and the equity market are lower based on concerns the Fed will speak about their make believe exit or reduction in QE.

Housing Risking Relapse Confronts Bernanke Conundrum
By Kathleen M. Howley and Rich Miller

Sept. 21 (Bloomberg) — The recovering housing market may be heading for a relapse as President Barack Obama and Federal Reserve Chairman Ben S. Bernanke consider ending support for the source of the global financial crisis.

The Obama administration is studying whether to let a first-time home buyers’ tax credit expire as scheduled at the end of November. Bernanke and his Fed colleagues may continue talking this week about how to wind down purchases of mortgage- backed securities, according to Peter Hooper, chief economist at Deutsche Bank Securities Inc. in New York. The two programs have helped stabilize real-estate demand, with new-house sales rising 9.6 percent in July from the prior month, the most since 2005.

Ending these efforts may stifle the housing rebound by depressing sales and pushing up both mortgage-backed bond yields and interest rates on home loans, even in the face of the record-low zero to 0.25 percent short-term rates the Fed has engineered, said economist Thomas Lawler. A weaker housing market would likely dampen the economic recovery and undercut shares of builders including Fort Worth, Texas-based D.R. Horton Inc. and Miami-based Lennar Corp., that have risen 40 percent this year, based on the Standard and Poor’s Supercomposite Homebuilding Index of 12 companies.

“Things could get ugly,” said Lawler, an independent consultant in Leesburg, Virginia, who spent 22 years at Fannie Mae, a Washington, D.C.-based government-controlled mortgage- finance company. “We could be facing a triple whammy at the end of the year: the expiration of the tax credit, the end of the Fed mortgage-buying program and rising foreclosures.”

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Jim Sinclair’s Commentary

Here is how today’s most important event was reported on the wire services.

Fed Rejects Geithner Request for Study of Governance, Structure
By Craig Torres and Robert Schmidt

Sept. 21 (Bloomberg) — The Federal Reserve Board has rejected a request by U.S. Treasury Secretary Timothy Geithner for a public review of the central bank’s structure and governance, three people familiar with the matter said.

The Obama administration proposed on June 17 a financial- regulatory overhaul including a “comprehensive review” of the Fed’s “ability to accomplish its existing and proposed functions” and the role of its regional banks. The Fed was to lead the study and enlist the Treasury and “a wide range of external experts.”

Some top central bank officials, after agreeing to the review, saw a potential threat to Fed independence after the Treasury released the proposal, two of the people said. The Obama plan said the Treasury would consider recommendations from the review and “propose any changes to the Fed’s governance and structure.”

“It is not obvious at all why that is a Treasury responsibility or even appropriate why the Treasury would undertake that kind of study,” said Robert Eisenbeis, chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey, and a former Atlanta Fed research director. “The Fed was created by Congress and it is not part of the executive branch.”

U.S. lawmakers have also called for a review of the Fed’s power and structure, saying Fed Chairman Ben S. Bernanke overstepped his authority as he bailed out creditors of Bear Stearns Cos. and American International Group Inc. while battling a crisis that led to $1.62 trillion in writedowns and losses at financial firms.

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Jim Sinclair’s Commentary

The IMF gold sale is not a market factor whatsoever no matter how much the Bears would like to make it so.

China weighs purchase of IMF gold -report
Monday, September 21, 2009 2:06:09 AM (GMT-07:00)

BEIJING, Sept 21 (Reuters) – China is considering buying gold being offered for sale by the International Monetary Fund, Market News International said on Monday, citing two unnamed government sources, but the report could not immediately be confirmed.

"China will consider buying if the price is right and the return is relatively high," MNI quoted one of the government sources as saying.

Gold <XAU>, which had dipped just below $1,000 an ounce, rebounded to $1,003.45 after the report. That would put the market value of the 403.3 tonnes on offer from the IMF at close to $13 billion.

"There was a small reaction to the news that China may discuss its gold plans at the G20, it recovered a little, but overall the market isn’t overly concerned, not yet anyway," a Europe-based trader said.

China, the world’s biggest producer and buyer of gold, revealed earlier this year that it had lifted its own stocks of gold to 1,054 tonnes from 400 tonnes when it last reported its holdings in 2003.

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Jim Sinclair’s Commentary

Pakistan remains the most dangerous geopolitical tinderbox.

Pakistan: More Aid, More Waste, More Fraud?
Posted by Doug Bandow

Pakistan long has tottered on the edge of being a failed state:  created amidst a bloody partition from India, suffered under ineffective democratic rule and disastrous military rule, destabilized through military suppression of East Pakistan (now Bangladesh) by dominant West Pakistan, dismembered in a losing war with India, misgoverned by a corrupt and wastrel government, linked to the most extremist Afghan factions during the Soviet occupation, allied with the later Taliban regime, and now destabilized by the war in Afghanistan.  Along the way the regime built nuclear weapons, turned a blind eye to A.Q. Khan’s proliferation market, suppressed democracy, tolerated religious persecution, elected Asif Ali “Mr. Ten Percent” Zardari as president, and wasted billions of dollars in foreign (and especially American) aid.

Still the aid continues to flow.  But even the Obama administration has some concerns about ensuring that history does not repeat itself.  Reports the New York Times:

As the United States prepares to triple its aid package to Pakistan — to a proposed $1.5 billion over the next year — Obama administration officials are debating how much of the assistance should go directly to a government that has been widely accused of corruption, American and Pakistani officials say. A procession of Obama administration economic experts have visited Islamabad, the capital, in recent weeks to try to ensure both that the money will not be wasted by the government and that it will be more effective in winning the good will of a public increasingly hostile to the United States, according to officials involved with the project.

…The overhaul of American assistance, led by the State Department, comes amid increased urgency about an economic crisis that is intensifying social unrest in Pakistan, and about the willingness of the government there to sustain its fight against a raging insurgency in the northwest. It follows an assessment within the Obama administration that the amount of nonmilitary aid to the country in the past few years was inadequate and favored American contractors rather than Pakistani recipients, according to several of the American officials involved.

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Jim Sinclair’s Commentary

This source has demonstrated reliability in its analysis of this subject and is therefore worthy of consideration.

Federal Reserve Accounts For 50% Of Q2 Treasury Purchases
By Tyler Durden
Created 09/20/2009 – 15:13

The degree of intermediation by the Federal Reserve in the issuance of US Treasuries hit a record in Q2, accounting for just under 50% of all net UST issuance absorption. This is a startling number, as the Fed’s $164 billion in Q2 Treasury purchases dwarfs the combined foreign/household UST purchases of $101 billion and $29 billion, respectively, over the same time period. In fact, the Fed was a greater factor in UST demand than all three traditional players combined: Foreigners, Households and Primary Dealers, which amounted to a $158 billion in net Q2 purchases.

This dramatic imbalance puts a lot of question marks over how the upcoming hundreds of billions in incremental Treasury purchases will be soaked up, now that QE only has $15 billion of capacity for USTs: with Households lapping up risky assets it is unlikely they will look at Treasuries absent some dramatic downward move in equities, while Foreign purchasers, which many speculate are in a game of Mutual Assured Destruction regarding UST purchases, have in fact been aggressively lowering their purchases of Treasuries (from $159 billion in Q1 to $101 billion in Q2, an almost 40% decline in appetite!). Will the US make these purchases much more attractive come October when QE for USTs ends? And if so, what kind of rates are we talking about? One thing is certain: in terms of priorities of the Federal Reserve, keeping the equity market buoyant, is a distant second to ensuring successful auction after auction well into 2010. After all there is near $9 trillion in budget deficits that need financing over the next 10 years.

From Morgan Stanley:

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Posted at 7:38 PM (CST) by & filed under Jim's Mailbox.

Hi Jim and Dan,

Did you guys discuss how just before the takeover announcement yesterday thousands of October 20th calls traded in PER when there is zero volume and open interest otherwise (in all months and strikes I might add). I am almost sure nothing will be done about this.

The craziness doesn’t end with that: Now the FDIC might borrow from the same banks it is suppose to regulate!?!

I am seriously thinking about moving out of the city and buying some farmland, but where?

CIGA PAUL

FDIC considers borrowing from banks to replenish dwindling insurance fund

WASHINGTON (AP) — Regulators have approached big banks about borrowing billions to shore up the dwindling fund that insures regular deposit accounts.

The loans would go to the fund maintained by the Federal Deposit Insurance Corp. that insure depositors when banks fail, said two industry officials familiar with the conversations, who requested anonymity because the plans are still evolving.

Regulators also are considering levying a special emergency fee on all banks, charging regular fees early or tapping a $100 billion credit line with the U.S. Treasury, the officials said.

FDIC spokesman Andrew Gray said that while borrowing from the banks "is an option, it’s not being given serious consideration." The board meeting where the plans will be discussed is scheduled for next week.

But a government official familiar with the FDIC board’s thinking said earlier Tuesday that the plan was being considered. He requested anonymity because he was not authorized to discuss the matter.

The fund, which insures deposit accounts up to $250,000, is at its lowest point since 1992, at the height of the savings-and-loan crisis. Ongoing losses on commercial real estate and other loans continue to cause multiple bank failures each week.

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Jim,

Now why would they be preparing for something like a run on money markets? Could it be because this is it?

CIGA BJS

Fidelity, Vanguard Said to Plan Emergency Bank for Money Market 
By Christopher Condon

Sept. 19 (Bloomberg) — Fidelity Investments and Vanguard Group Inc. are among firms planning to set up an emergency pool of cash aimed at preventing a repeat of the run on money-market funds a year ago, said two people familiar with the plan.

Funds would pay a fee to an entity called the Liquidity Exchange Bank, building a cash reserve that would help them handle investor withdrawals during a crisis like the one last September, said the people, who asked not to be named because the information wasn’t public. The bank, which would buy securities at face value from the funds, could also apply for emergency support from the Federal Reserve discount window.

Asset managers are preparing the plan as the Obama administration considers forcing funds to abandon their stable price of $1 a share, a change the firms believe could undermine the attractiveness of money market funds, which currently hold $3.45 trillion. A Treasury Department program insuring money funds against losses from defaulted securities expired yesterday.

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Jimmy,

I told you that we should have had a cash for new refrigerators followed by a cash for new LCD TV’s, and a grand finale of a cash for new off-road 4 wheelers…

The question is "Now what?"

Trader Dan

Dear Dan,

"Cash for Codgers" to reduce health costs. Triple cash for old conservative couples.

Remember Soylent Green?

Regards,
Jim

Car showrooms quiet after clunkers clamor ends
Dealers add other incentives in bid to entice buyers
By Megan Woolhouse
Globe Staff / September 19, 2009

It has been nearly a month since the car-buying frenzy of the Cash for Clunkers program ended, and many area auto dealers are longing for the good old days of July and August.

Like consumers nationwide, Massachusetts residents rushed to take advantage of the federal voucher program, which offered them up to $4,500 on old gas-guzzlers to be put toward the purchase of new, more fuel-efficient vehicles. About $65 million worth of vouchers were handed out statewide during the monthlong program that ended Aug. 24.

But once the federal money dried up, so did the sales rally. Now, customers at dealerships like Silko Honda in Raynham are few and far between, and inventory is once again accumulating.

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Posted at 2:09 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

The HUI has run into selling pressure centered near the 450 level and has retraced some ground finding support above the former late May/ early June top at 405. There looks to be stronger support near the 376 level should that not hold. As I write this the HUI is well off its session low and actually performing quite well technically. That top near 405 was a formidable barrier to upward progress for some time and sure does seem to now be working as very good support.

The blip in the Dollar is associated with its severely oversold status in front of the upcoming FOMC meeting this week. That led to some further selling at the Comex as just about every commodity across the board was sold since the hedgie algorithms commanded their servants (that would be the carbon-based humanoids called hedge fund managers) to sell “things” when the Dollar bounced. Once the Dollar moves lower, the same servants will be dutifully buying back more “things” once again. (My aren’t they a clever bunch).

Silver has put in one impressive bounce off its worst levels and is trading back above the 10 day moving average. Gains in tomorrow’s session would embolden bulls and unnerve weak-handed shorts. We will have to wait and see what the sentiment is towards the greenback tomorrow.

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

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