Posted at 3:23 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Welcome back to the reflation trade and the end of “deflation” talk once more. The soaring equity markets and surge higher in the Euro was all that it took to flip the algorithms into the “BUY” mode for anything and everything including sea shells by the sea shore sold by Sally.

Gold shot up and initially hit a wall of selling below $1,080 which took it down earlier in the session but once the Euro began to gather upward momentum and the S&P 500 took out yesterday’s high, shorts in gold began a ferocious wave of covering that took the metal up through $1,080 and into preplaced buy stops which then ran price slightly higher before the bullion banks attempted to lean on it again. Their selling managed to cap it and take it back down below $1,080. It certainly does appear that there is substantial buying of the metal in the $1,040 – $1,050 region, buying large enough to absorb an awful lot of long liquidation. Again, just a reminder, India made its purchase of those 200 tons of gold not too far from that level late last year. China got caught flat-footed by their buy and will not make the same mistake again. The Central Banks of both these two nations are titans in the gold market so their footprints should not be too hard to discover, although they will attempt to camouflage their actions.

If you look at copper, it managed to claw its way above the $3.00 pound level further reinforcing the idea that Friday’s spike low marked a temporary end to the downtrend. It is not out of the woods yet as it will need to climb above the $3.15 level before bulls can claim victory over the deflationists but its chart is improved technically. Copper is still a bellwether for the inflation/deflation battle and that is the reason I bring this up. I want to watch the equities, the Dollar, particularly against the Euro, and copper to get a feel for how this inflation/deflation battle is shaping up and to measure which side is gaining the advantage.

The HUI finally showed some signs of life today taking out yesterday’s high and helping to reinforce the notion that it too might be temporarily sold out but I will not be confident of its gains until it climbs back above 400 and stays there for at least two full sessions. Those ratio spread trades have pushed the HUI/Gold ratio to rather low levels which should tend to work in favor of the shares should they trip some upside technical resistance levels. It looked like some of those spread trades were coming off today. If the HUI can hold its footing above the downtrending 10 day moving average near 386, that should begin getting some of the momentum traders interested in the long side. One day does not however make a trend so the jury is still out for now. We’ll see.

The Dollar was spanked hard today as RISK was back in vogue. Keep in mind that the Dollar has one of the largest, if not THE largest speculative net long positions on record. That does not necessarily mean it is due to collapse but what it does mean is that if any important downside technical levels are violated, a massive wave, and I do mean massive, of long liquidation will take place. This market is so lopsidedly imbalanced on the long side that the sheer weight of those stale longs could drop the Dollar several hundred points very quickly. The action in the Dollar, especially coming on the heels of Jim’s keen observations concerning the recent gathering of the money lords, is very interesting to say the least.

Technically, the Dollar looks to be vulnerable to what I described above should it breach 79 to the downside on decent volume. That has not yet occurred. The hedge funds that have poured into the Dollar are going to be tested to see how seriously they are willing to defend their boatload of longs. If they can successfully beat back the bears, it will be a credit to their willingness to commit vast sums of money to defend a fundamentally-based train wreck. Stay tuned on this one because it is a key market for us to watch.

Once again the bond market is displaying very unusual behavior considering the money flow back into “risk” trades. One would think that the sheer supply of bonds coming to the market to fund US spending orgies coupled with a surge in the broader equity markets would knock the props out from under the bond market and send them sharply lower with a corresponding move higher in long term rates. Not so! That alone is what makes the price action there so bizarre. I have said this before –based on what I can see occurring in that market, I am convinced that the US monetary authorities have their pals at work artificially propping up the bond market in an attempt to force longer term rates lower, or at the very least, prevent them from rising. The Fed and its cronies do not want to see higher interest rates, no matter what kind of blather comes out of their yakking mouths. (As I prepare to send these comments in bonds are finally seeing some selling coming in).

That is where the conundrum regarding the Dollar has its roots. They cannot have it both ways – a move higher in the Dollar will allow them to peddle their debt on the world markets a bit easier and make for lower yields on that debt. On the other hand, a stronger Dollar hurts US export competitiveness which is not at all helpful to an economy that is flatlining nor does it make it any easier to repay all this massive debt. A weaker Dollar helps to solve this problem but then yields become too low for prospective buyers and/or existing holders of US debt. That means that the bond market needs to fall to push up yields to make them more attractive which then stuffs the real estate sector. Pick your poison guys – you created this mess.

Crude oil has thus far put in a pretty good move higher, building on its gains after the spike lower into the $70 level. Any pickup in economic activity and thus energy demand should show itself on this chart, which so far is less than impressive as it remains range-bound between $70 on the bottom and $80-$82 on the top and has been now for some time.

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 1:57 PM (CST) by & filed under Jim's Mailbox.

Long Term U.S. Government Bonds
CIGA Eric

Long-term U.S. Government Bonds: "It is our dollar but your problem." But for how much longer? It will become our problem when LTGBTRI breaks the 1981 up trend line. The trend in the bond market has become the canary in the coal mine.

Update
The 1981 LTGBTRI and LTGBCAI long-term trend lines have been broken. The intense secrecy within G-7 as credit markets waffle is no coincidence. Traders will start pushing this one, like shooting fish in a barrel, as recognition increases.

Long-Term U.S. Government Bonds Total Return Index (LTGBTRI):
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Long-Term U.S. Government Bonds Capital Appreciation Index (LTGBCAI):
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Hello Jim,

Do you think silver and gold are part of the US dollar carry-trade? If so, what could be a flash point for us to look for when the big unwinding is to occur, or are we already in it?

CIGA JB Slear

CIGA JB,

Yes, and it has already occurred.

That is why swings of $200 will become common.

Jim

Posted at 12:26 AM (CST) by & filed under General Editorial.

My Dear Extended Family,

I doubt there has ever been a time in financial history when there has been challenges of this magnitude.

This is not business as usual in any form.

When have financial meetings been so top secret?
When has the military cordon off financial meetings?
When have F-18s, F-22s and French Rafales provided air support (as the Swiss did for the Davos seminar) for two central bank meetings in the last few weeks as the USA and Australia did?

Don’t accept terrorism as an excuse for everything that remains unexplained. There are so many lies and so much misinformation out there that the task of figuring out what is real is a daunting task.

I implore you to go for safety in everything you do. How can you go wrong hunkering down?

Do not speculate.

You cannot out trade these people nor can you read their intentions by charts. Both are impossibilities.

Do not deal on borrowed money. Secure you and yours. Take delivery of your precious metals and share certificates.

We are in unchartered seas of international financial turmoil. The mega rich have no loyalty to anyone or anything.

I know some of them, made one of them from scratch, and I assure you would put their mothers in a microwave for the right price. This is a financial world war taking place behind top secret meetings that are deciding our fate while not even knowing they are out of control.

I can’t change this but I can do my best to protect you.

Respectfully,
Jim

Posted at 7:07 PM (CST) by & filed under In The News.

Dear Extended Family,

New York State spending is out of control. California tried to go off the dollar but the California IOU is a total failure.

There are 38 states right behind California and New York, all of which are too big to fail.

The debts of the weaker European Union states are under attack by the huge short players. In time every currency will come under attack by the same ever-growing source of wealth.

Today’s action in gold, especially before the Crimex attack and dollar linking in the inverse, has delivered me my answer.

The following is ABSOLUTELY correct, so therefore sell all currencies into strength and buy gold on all weakness. There is no other strategy that will survive.

This is all you need to know:

1. Bretton Woods was folded.
2. The floating exchange rate system is about to be folded.
3. By default or design we are going to a one-world currency and a one-world central bank of central banks.
4. For Portugal, Ireland, Italy, Greece or Spain to break off from the euro would be an expansion of the floating exchange rate system under present conditions.
5. There are presently 3 major currencies. That is the US dollar, the euro and gold.
6. The SDR was an attempt to form a single reserve currency that never took flight.
7. The SDR is an accounting unit made up of an index of currencies much like the USDX.

Respectfully,
Jim

 

Thought For The Day:

The recent two central banks meeting are so secret that it has all the appearance of how the Nazis were tricked into thinking General Patton would lead the invasion of Europe.

They were cordoned off by military or police to a distance of three miles in all directions with air force cover protection.

I accept the action of gold in Asia and Europe pre-Crimex attack with a modestly lower Euro as confirmation of the conclusions contained in the email sent to you over the weekend.

Social security is headed for the rocks.

The longer the heavy business conditions last the more retirements will occur within the social security network.

You have to ask yourself if there is anything government wise of a financial nature that is not a wreck. Then ask yourself can these wreckers make anything right except the OTC derivative winners.

You have to ask yourself if the social security system is being analyzed as net cash or gross cash and receivables from the Federal government.

Should it be the latter then the problem is more serious.

Rash of retirements pushes Social Security to brink
By Richard Wolf, USA TODAY

WASHINGTON — Social Security’s annual surplus nearly evaporated in 2009 for the first time in 25 years as the recession led hundreds of thousands of workers to retire or claim disability.

The impact of the recession is likely to hit the giant retirement system even harder this year and next. The Congressional Budget Office had projected it would operate in the red in 2010 and 2011, but a deeper economic slump could make those losses larger than anticipated.

"Things are a little bit worse than had been expected," says Stephen Goss, chief actuary for the Social Security Administration. "Clearly, we’re going to be negative for a year or two."

Since 1984, Social Security has raked in more in payroll taxes than it has paid in benefits, accumulating a $2.5 trillion trust fund. But because the government uses the trust fund to pay for other programs, tax increases, spending cuts or new borrowing will be required to make up the difference between taxes collected and benefits owed.

Experts say the trend points to a more basic problem for Social Security: looming retirements by Baby Boomers will create annual losses beginning in 2016 or 2017.

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Jim Sinclair’s Commentary

Meaning no disrespect, the following photoshopped picture clearly communicates our views on allowing corporations to make political contributions without limit.

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Jim Sinclair’s Commentary

The following is from Zero Hedge.

Their suspicions are on the mark. It is a short raid just like we witnessed when Bear, CITI and Lehman went down.

One has to wonder if the MOPE of draining liquidity, the Fed and Britain are sustaining this raid. I think intentionally or coincidently the answer is yes!

"In the pre-math of the Greek collapse, conspiracy theories are swirling about who keeps blowing Greek CDS spreads wider. The answer, so far completely unconfirmed, is that a large US investment bank (we "wonder" just which US investment bank dominates the sovereign CDS market), and two major hedge funds are behind the CDS "attacks" on Greece, Portugal and Spain. According to Jean Quatremer, and his Coulisses de Bruxelles, UE blog, the plan involves blowing spreads to record levels, and is prompted by the hedge funds’ anger at not having been allocated substantial amount of the recent €8 billion GGB issue, in order to lock in profits from their CDS long exposure. Being thus unhedged with a short bias, their alternative is to continue buying protection else risking to mark losses on their extensive CDS short risk exposure."

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Jim Sinclair’s Commentary

This was not limited to the G7 meeting. This was a very secret meeting.

I gave you the skinny on it yesterday both by postings here on the site and by direct email. Secrets are not required when the material in discussion is about normal matters.

"However, a secretive gala dinner at the Art Gallery of NSW to mark the event last night attracted a who’s who of Australia’s political and business world."

"The event was held in the Grand Court, which seats up to 350 people."

"The low profile of the meeting is also a matter of design. Security is tight and the location of events a closely guarded secret."

Treat for elite as Reserve Bank celebrates
JESSICA IRVINE, VANDA CARSON AND ELLIE HARVEY
February 9, 2010

CENTRAL bankers are an unobtrusive breed by nature and necessity. So it might have escaped the attention of many that Sydney is playing host to a meeting of some of the world’s top money men and women to celebrate the 50th birthday of the Reserve Bank of Australia.

However, a secretive gala dinner at the Art Gallery of NSW to mark the event last night attracted a who’s who of Australia’s political and business world.

Bankers rubbed shoulders with celebrated economic figures. Past prime ministers from both sides of the political divide gathered to drink a toast to Australia’s success in weathering the global economic storm, including John Howard and Paul Keating.

Past treasurers included Peter Costello, John Dawkins, John Kerin and Ralph Willis. And, of course, the RBA was well represented, with governor Glenn Stevens and former governors Ian Macfarlane and Bernie Fraser in attendance.

Around 7.15pm, John Howard and his wife Janette arrived, almost at the exact time as Mr Costello, from the other side of the entrance. The pair met, shook hands, and offered a polite ”Good to see you” before moving up the stairs.

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Jim Sinclair’s Commentary

This is what CIT is. Small business depends on CIT to factor inventories as well as other requirements.

This is Main Street’s business life blood. This is a company with no access to the commercial paper market. No commercial paper market means no funds for factoring.

Small businesses could drag down recovery.
Small businesses helped lead the economy out of the four recessions since 1980, but are now threatening the country’s economic recovery as they continue to cut capital spending and fire employees. Another 3,000 jobs were eliminated from small businesses in January; if the trend continues, improvement in the national unemployment rate, which dropped to 9.7% in January from 10.1% in December, could stall and economic growth could fall short of the 2.7% annual rate forecast.

Jim Sinclair’s Commentary

This seems to me to as comparable to President Bush’s shipboard announcement on the Iraq war, "Mission Accomplished."

There is something I am careful about and that is NEVER say NEVER. It is however a volley over the bow of Moody’s rating service.

Geithner Says U.S. Will ‘Never’ Lose Aaa Debt Rating (Update1)
By Rebecca Christie

Feb. 8 (Bloomberg) — Treasury Secretary Timothy F. Geithner said the U.S. is in no danger of losing its Aaa debt rating even though the Obama administration has predicted a $1.6 trillion budget deficit in 2010.

“Absolutely not,” Geithner said, when asked in an ABC News interview broadcast yesterday whether a downgrade is a concern. “That will never happen to this country.”

Geithner said investors around the world turn to U.S. Treasury securities and dollar-denominated assets whenever they are worried about global stability. That reflects “basic confidence” in the U.S. and its ability to bounce back from the global recession, he said.

Moody’s Investors Service Inc. last week said the U.S. government’s bond rating will come under pressure in the future unless additional measures are taken to reduce budget deficits projected for the next decade.

The U.S. plans to rein in the deficit once the labor market recovers, Geithner said. In the short run, that means focusing on ways to “make sure that this economy is growing again,” he said. The administration says the deficit will shrink over the next four years as more Americans find jobs and the economy accelerates.

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Jim Sinclair’s Commentary

The real CIT story is that they are NOT welcome in the commercial paper market which restricts their business to their present fixed loan lines and available cash capital.

That is extremely bad news from Middle America. Thain will not find a ready buyer for CIT as he did for Merrill, even though that was not his will.

Former Merrill Lynch boss appointed CIT chief

The former chief executive of Merrill Lynch, John Thain, has been appointed as the new boss of US lender CIT Group, which recently emerged from bankruptcy.

CIT will pay Mr Thain $6m (£3.8m) a year – $500,000 in cash, $2.5m in stock to be held for one year, and $3m in stock to be held for three years.

Mr Thain resigned from Merrill just after it merged with Bank of America at the start of last year.

He was criticised for allowing big bonuses despite Merrill’s hefty losses.

These were paid out just days before the takeover by Bank of America.

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Jim Sinclair’s Commentary

There is no PRACTICAL means of draining the huge liquidity injected into the economy.

The operative word is PRACTICAL.

The Fed is playing with fire as this will not impress Wall Street, but scare the hell out of worldwide equity people.

By playing this game the Fed may well loose the wealth effect of the improved equity market, thereby risking losing it all.

QE to infinity or the Fed is history.

The Fed’s "Exit Plan" Is Just Another Secret Gift To Wall Street
Feb 08, 2010 09:50am EST
by Henry Blodget

The Fed is planning to detail its "exit plan" this week, the WSJ says.  This exit plan is the means by which the Fed will gradually reverse the tremendous stimulus it is still pumping into the economy and financial system.

As we’ve noted often over the past year, the Fed is in a bind.  During the financial crisis, it bought hundreds of billions of dollars of real-estate and other assets from banks to reduce mortgage rates and ease the pressure on bank balance sheets.  This, in turn, pumped hundreds of billions of new dollars into the economy, which has enabled the banks–and bankers–to make a killing over the past year.  The question is how the Fed can reverse this stimulus without killing the economy.

The idea behind giving the banks cheap money was that the banks would lend it to consumers and businesses.  Unfortunately, that hasn’t happened: Since the start of the crisis, bank lending has fallen off a cliff.  The banks are, however, lending to the Federal government, which needs to fund record deficits by borrowing more than $1 trillion a year.  The combination of the Fed’s desire to stimulate lending via cheap money and the government’s desire to stimulate the economy by running a huge deficit has made it a great time to be a bank: Banks can borrow from the government at artificially cheap rates and then lend the money back to the Federal government at higher rates, pocketing the difference.

And now it’s going to get even better to be a bank.

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Jim Sinclair’s Commentary

The best technology for this type of transportation is not resident in the USA. The US program to build this will benefit non American companies to a large degree.

China’s fast trains may offer tips for U.S.
By Calum MacLeod, USA TODAY

ABOARD THE GUANGZHOU-WUHAN EXPRESS — Once the speed gauge hits 350 kilometers per hour, or 217 miles per hour, passengers charge down the aisle to photograph the electronic display.

"If we go any faster, we’ll take off!" jokes Hu Qing, cracking open another can of beer on China’s world-record-breaking train.

The Dec. 26 opening of the high-speed link between south Chinese cities Guangzhou and Wuhan is the latest example of massive state spending to keep China’s economy roaring. The fast-expanding network of high-speed trains is stoking patriotism, too.

"This train is the pride of the Chinese people," says Hu, 42, the boss of a paper factory, who chose the train over a direct flight home to northeast China.

U.S. companies await the first round of government grants announced by President Obama in his State of the Union address totaling $8 billion to jump-start long-delayed high-speed rail in the USA.

Meanwhile, China enjoys a considerable head-start.

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Jim Sinclair’s Commentary

No currency will do this for you, yet gold can going into 2011.

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Decade 2000-2009: Gold’s gain against 17 currencies (in %)

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Jim Sinclair’s Commentary

Typical and across the board.

What is the difference between the weak states of the euro and the weak states of the USA? What is the difference between Greece going back to the Drachma or California issuing IOUs?

The answer is pure MOPE.

Oregon government revenues still dropping
By David Steves
The Register-Guard

SALEM — Passage of measures 66 and 67 may not have rescued state government from budget woes after all.

Even with the new taxes and a slowly recovering economy, Oregon’s revenue collections are now expected to fall $183 million below previous expectations, according to the latest forecast issued today.

That’s a small fraction of the $13.3 billion in general-fund spending planned for 2009-11 — but enough to put the budget $106 million after whack, after accounting for the $77 million ending balance. State Economist Tom Potiowsky attributed the dropoff in projected personal income tax revenue to two factors:

A slightly slower pace of economic recovery than was expected in the previous forecast.

A reduction in the tax payments coming in from high-income individuals.

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Jim Sinclair’s Commentary

The Fed is playing with a nuclear-hot potato.

Talk hawk and the house will fall down in the Western world.

Believe me, neither the White House or the ECB want to hear that. Clearly the equity boys do not want to hear that.

If Bernanke plays it wrong, the only way a democrat will be elected in November is by changing the party affiliation. QE to infinity must happen or the Fed is History.

Dow Industrials Post First Close Below 10,000 Since Nov. 4
By JAVIER C. HERNANDEZ
Published: February 8, 2010

The Dow Jones industrial average, one of the most watched metrics of the financial world, dipped below the 10,000 threshold on Monday, delivering a psychological setback as investors sought to overcome fears of a faltering global recovery.

At the close of trading on Monday, the Dow settled at 9,908.39, its lowest close in three months.

Lingering fears over a debt crisis in Europe helped trigger the Dow’s fall. As several countries across the Atlantic grapple with swelling deficits, investors spent Monday trying to gauge how seriously American banks would suffer if European governments could not pay back their debt.

Analysts said the Dow’s drop below 10,000 probably did not mean much for the future of the stock market, but they noted it had a deeper psychological effect for Wall Street.

“Investors and traders find solace in 10,000,” said Jeffrey A. Hirsch, editor of The Stock Trader’s Almanac. “While it may not be important technically, falling below that level indicates that the whole economic picture is not as rosy as everyone had thought.”

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Jim Sinclair’s Commentary

You can bust any debt by just running the OTC derivative market in the direction of your play. It is simple and effective.

Cash markets are always run by the leverage market. Damn those OTC derivatives anyway! You think any country will escape this?

What Do Rising Sovereign Credit Default Swaps Mean?
Monday, February 8, 2010

Here are the CDS of Greece, Portugal, Spain and the U.S.:

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Rolfe Winkler argues that – in the short-run – the PIIGS countries (Portugal, Ireland, Italy, Greece and Spain) will slash their budgets and get bailed out by the EU.

Simon Johnson thinks that the weakening Euro caused by the PIIGS’ woes will hurt American exports (weaker Euro equals stronger dollar), and could lead to problems for leading global banks.

Other commentators fear that the PIIGS’ crisis has as much potential as a financial "contagion" as the subprime meltdown and the failure of Lehman.

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Jim Sinclair’s Commentary

And what makes you think that MOPE will ever report truthfully?

The US Economic Crisis: Jobs Continue to Vanish While the Media Applauds “Recovery”
by Shamus Cooke

At first glance it appeared there was a typo in the headlines. The national media reported that, in January, another 20,000 more jobs were lost.  Somehow, the unemployment rate dropped, from 10 percent to 9.7 percent.  Nobody thought this paradox was worth explaining; instead, the media’s attitude was “more good news” about the economy.      

But there was other evidence of an obliterated job market hiding behind the cheerful headlines.  After revising the employment numbers in 2009, The New York Times reported, “…the economy lost 150,000 jobs in December, far more than the 85,000 initially reported.”  Overall in 2009, the adjusted numbers showed an additional “…1.36 million fewer jobs…” (February 5, 2010).

And yet the unemployment rate dropped.  One reason this happened is that the U.S. government uses a separate, more unreliable survey to calculate the unemployment rate, in contrast to the survey used to calculate job losses.  There are other more important ways the government obscures the unemployment numbers: if you are no longer receiving unemployment benefits you’re not counted as unemployed; if you’ve given up looking for a job, you’re not counted either.  You are counted, however, if you are working only 15 hours a week, or if you’re a temporary worker.

In this way the government cooks the books to bring fake optimism to the masses.  The mainstream mediareports these fraudulent numbers without asking questions, so that the Democrats can continue doing absolutely nothing towards creating jobs.

But there is a method to the madness.  Mass unemployment brings incredible pressure on workers’ wages and benefits.  The mere threat of being unemployed puts unorganized workers in a precarious position when they’re told to work for less.

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Jim Sinclair’s Commentary

You expected any different?

Irked, Wall St. Hedges Its Bet on Democrats
By DAVID D. KIRKPATRICK
Bankers, unhappy at the president’s proposals for tighter financial regulations, are shifting donations to Republicans.

 

Jim Sinclair’s Commentary

The illusion now is that ANY currency will maintain buying power.

"The top four U.S. states in the Fiscally Challenged Rankings would make the Greek situation look something akin to a storm in a tea cup."

The Illusion of U.S. Dollar Safety

NFP Fickleness

Over the course of December and January traders witnessed the ultimate in fickle behavior by the globally traded market, which was instigated by the December 4th 2009 Non-farm Payroll numbers printing at -11K jobs, that was far better than the expected -114K. Joyous jubilation hit Wall Street and, as the bunting and tick-tape floated around sunshine lit skies, the USD found buyers.

The equity markets took their time to absorb the historically unreliable NFP report, but within three sessions had found enough support to move S&P futures trade off the 1085 area, and up to test 1151, in a 6.5% move that topped out just in time to absorb January’s NFP numbers.

The Correlation Story

In the December move higher in stocks, the USD shed its high correlation with the equity markets, and took a hiatus from the 90% correlated moves each day, as the global market bought into U.S. economic jobs growth. Stocks went higher, yields went higher, commodities went higher (it took an extra week for commodity markets to catch up, but they too bought into the party with oil moving from $77 to $84 in an 8.5% move), all at the same time, in a play that bought into USD strength and safety.

In January, the NFP party had some cold water thrown on it with a read of -85K. Two days after the release the S&P futures market started its decline from 1151 toward 1068 at the time that February NFP numbers were revealed. The 7% drop in S&P trade reversed the December NFP equity rally.

The USD took strength from the January equity decline, and re-built the Risk Aversion = Stocks Lower = USD higher correlation (dollar up as Treasuries are bought as stocks are sold). The February NFP numbers were released at -20K, with massive revisions to the October and November numbers that added over 200K more job losses than had been reported, and threw into question the market-wide reaction to previously positive numbers.

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Jim Sinclair’s Commentary

This is the big guys rolling over.

Apparently not every mansion is owned by a derivative dealer.

Jumbo Mortgage ‘Serious Delinquencies’ Rise to 9.6% (Update1)
February 08, 2010, 12:52 PM EST
By Jody Shenn

Feb. 8 (Bloomberg) — U.S. prime jumbo mortgages at least 60 days late backing securities reached 9.6 percent in January from 9.2 percent in December, the 32nd straight increase for “serious delinquencies,” according to Fitch Ratings.

“The trend line for delinquencies indicates the 10 percent level could be reached as early as next month,” Vincent Barberio, a Fitch managing director in New York, said today in a statement. The rate almost tripled in 2009, Fitch said.

Soured debt across loans backing so-called non-agency securities ballooned last year amid new defaults caused by slumps in home prices and employment, and as the federal government pushed loan servicers to consider debt modifications and states moved to slow foreclosures, reducing property liquidations after borrowers stopped paying.

The share of borrowers current the previous month and that then turned delinquent fell to 1.2 percent in the month covered by January bond reports, down from 1.3 percent as of December reports, Fitch said. The jumbo sector of the non-agency market was the only one in which so-called roll rates — or the amount of loans turning delinquent — rose from a year ago, according to the statement.

Jumbo home loans are larger than government-supported mortgage companies Fannie Mae or Freddie Mac can finance. Their limits now range from $417,000 in most places to as much as $729,750 in high-cost areas. Loans in jumbo securities can be smaller than those amounts if they were issued in earlier years. Non-agency mortgage securities lack guarantees from Fannie Mae, Freddie Mac or federal agency Ginnie Mae.

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Posted at 6:55 PM (CST) by & filed under Jim's Mailbox.

What is lumber telling us?
CIGA Eric

What is lumber telling us about the near-term strength of the economic recovery?

Lumber Futures Continuous Contract and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:
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Many uphold the view that housing is the key to economic recovery insomuch that affords consumers to ability to borrow and consume – the engine of US growth. Further declines in lumber prices implies a weak housing market. A weak housing market implies a faltering economy.

Infinite QE will not be withdrawn as long as the economy/housing continues to weaken. Infinite QE will drive the dollar lower. As goes the dollar, so goes gold in the inverse.

I will be watching lumber closely during the bearish setup.

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Jim,

The greatest shortcoming of the human race is our inability to understand the exponential function.

Please look at this great video. It explains in a few words all the challenge we are facing in the next decades.

We must understand the consequences when we see a % growth figure in the newspaper such as % growth of money supply, % growth of debt, % growth of energy demand…

After several decades of steady growth of total (public and private) debt it is now easy to understand that this madness has to stop one day and very soon or like you say we must think of "QE to infinity".

Best regards,
CIGA Christopher

Dear Christopher,

Think about the doubling concept, and the huge growth in OTC derivatives plus the budget deficit.

God help us all. They have killed us.

Regards,
Jim

Jim,

I agree.

I believe that your last commentary toward the attack of debt, thus, an indirect assault on the currencies behind them, represents the highest realization of warfare as described by Sun Tzu in Art of War.

The highest realization of warfare is to attack the enemy’s plans;

Next is to attack their alliances;
Next is to attack their army;

And the lowest is to attack their fortified cities.

We must assume that the level of secrecy implies that the plans have changed? Does this mean that the dollar, fiat money in its present state, is no longer defendable? If so, a new currency, a single currency must be formed with highest potential for wide acceptance by the West. This must be done in secret so that enemies do not have time to adapt to the weakness of the plan.

The form is easy, but acceptance is not. Does acceptance come during a period of perceived prosperity or turmoil? If it is the latter, watch out. The latter, however, carries the consequences of angering the masses. Masses that, when organized, have the potential to change all of the rules despite the best of plans.

CIGA Eric

 

Dear Mr. Sinclair,

My father, being a businessman with a career that has spanned through the mid-1960′s up thru the current time, has often sparred with me in my belief that the dollar (known to him as "cash" through the early years) is not the pre-eminent means of savings. Although he has a portion of his wealth allocated to precious metals and precious metals equities, the position is somewhat small relative to his net worth.

I have often informed him that what I see being the end result of this "fiscal takeover" is a cash-less society where currency only exists in the form of a computer entry and is only accessible via electronic form. Therefore any entity who saved cash in any form outside the banking system basically loses everything. Do you see this as part of the result of the current actions taking place, particularly those noted in today’s commentary?

Best Regards,

Your Friend,
CIGA Marc

Dear Marc,

YES!

Regards,
Jim

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

Dear CIGAs,

Today was, “Let’s throw away the Dollar and Buy everything else in sight” day. The entire commodity sector had money flowing back into it in a big way today as both the Yen and the Dollar were jettisoned in favor of “risk” plays. Copper reversed its collapse building a bit on Friday’s bounce. Ditto for silver and for crude oil. Even pork bellies were higher today.

The effect of all this was a steady flow of buy orders into gold the entirety of the session. So far it has pushed to a high near $1,074. If it can get back above that critical level of $1,080 and hold there for a couple of days, it has a much better chance of entering a range trade rather than making another leg lower as technicians will point to bear-flagging action unless it recaptures the former broken support level where our big buyer of size had once been making their presence felt. While it is nice to see the gains in gold, technically it has a lot of work to do to repair the severe chart damage of the last week.

Once again the problem is the mining shares as the HUI still can barely manage even a bounce. The hedgies are continuing to sit on the shares with their ratio trades. The sheer “logic” of this trade reflects just how ignorant the majority of hedge fund managers are and how algorithms have taken over the markets at the expense of reality but it is what it is for now and with as much money at their command as they have, until these guys decide to either reverse those spreads or lift the short leg, the shares are going to underperform. Same comments as Friday – the HUI will need to get back above the 400 level to initiate more short covering and kick in some fresh buying.

You can get a pretty good feel for how the battle between the inflationists and deflationists is playing out by watching a few key markets such as copper and soybeans but a better picture still remains the Continuous Commodity Index ( I still do not like the CRB index because it is too heavily weighted in energies). The CCI needs a weekly close above 481 – 482 to give the inflationists a reprieve from the recent selling barrage in this sector and turn that weekly chart friendly again on the shorter term. Long term its uptrend still remains intact. Short term the trend encourages selling into rallies.

As usual we are back to watching the broader equity markets and the currency markets to gauge the psychology of investors/traders. The S&P 500 will have to climb above 1105 and hold there for two days to convince some of the shorts to get out. While the Dollar is moving lower today, as long as it remains above 79, the short term trend is in favor of the bulls. Money flows are what markets have become all about these days and it is those two primary markets that determine pretty much where that stuff goes.

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

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Posted at 6:07 PM (CST) by & filed under General Editorial.

Dear CIGAs,

1. Bretton Woods was folded.
2. The floating exchange rate system is about to be folded.
3. By default or design we are going to a one-world currency and a one-world central bank of central banks.
4. For Portugal, Ireland, Italy, Greece or Spain to break off from the euro would be an expansion of the floating exchange rate system under present conditions.
5. There are presently 3 major currencies. That is the US dollar, the euro and gold.
6. The SDR was an attempt to form a single reserve currency that never took flight.
7. The SDR is an accounting unit made up of an index of currencies much like the USDX.

There is no immunity now from the size of funds seeking to speculate or manipulate markets. This type of money is attacking the debt of the weaker euro states by intention or coincidence. Their success in the Iceland situation was only the first chapter of a multi chapter play.

Central bankers fear that this type of action, most certainly if it is as successful as it was on Iceland, succeeding against the weaker euro states could easily attack the present functional reserve currencies, the US dollar and the euro.

There is an implicit fear that if the ECB refuses to or cannot sustain the debt of Portugal, Ireland, Italy, Greece and Spain the next to fall will be both the US dollar and the euro.

The states of the US are no different, in form or short opportunity, than weak members of the euro. Already major money is short California, New York and Pennsylvania debt. A pounding of state debt is as easy as the pounding of the weaker members of the euro.

Attack of a currency is primarily an attack of the debt representing that currency.

Central banks are run by bankers who used to measure their capital in millions only a few years ago. After the invention of the OTC derivative they measured their capital as today in billions. They now imagine measuring their capital both of their banks and personally in the trillions as they challenge nations, not companies.

China knows this and is insulating itself from this.

To accomplish this end whilst maintaining and increasing the value of hard assets ( assets of major players) a new single reserve currency must be functionally initiated either by default or by design.

A singular world currency must be an index of many currencies adjusted from time to time. Adjustment within its membership is the key to a common currency that the EU forgot about.

Whatever institution manages that index becomes the central bank of central banks able to create artificial money according to its allocation of the single currency index. This is what was desired of the SDR originally.

The chances of reverting to a Bretton Woods or increasing the Floating Exchange rates are unlikely.

A collapse of the weaker states of the euro would be an expansion of the floating exchange rate strengthening the market forces that will attack all nations one by one after their success in Iceland. The weakest will be the first to go, but none are safe.

The chance of an abrupt change to something new now, as above, is unlikely. The probability of moving towards a one world currency in stages over the next 5 years is a reality.

In order to make that transition a method of raising the status of the IMF and the SDR would be most likely. Such a transition would be for this entity to assist in sustaining the weaker states of the euro and the USA as the states of the USA are now rolling over harder, balance sheet wise, than the weaker states of the euro

The debt of nations is not immune to the tsunami of these speculative and manipulative funds attacking by design or coincidence, focusing on a market all on one side – short.

OTC derivatives are being used in the strategy to collapse the weaker states of the euro.

OTC derivatives are the cause of this entire trauma by design or coincidence.

Nothing has been done to curtail or reduce the ever-growing mountain of these instruments.

All that has occurred is the new means of valuation as value to maturity, and the collapse of FASB requiring market valuation. Both items repaired the appearance of the balance sheet of the financial entities by allowing a cartoon of valuations to re-enter the system.

The decision will take place that is in the best interest of the majority power of four groups ruling these bi-polar central bank meetings. Those groups are the banksters, bankers, Daddy Warbucks and politicians.

Results:

1. Gold will progressively lock price-wise in the inverse to the SDR or similar item.
2. An exchange will soon begin to trade a virtual SDR or similar item just as they trade a virtual dollar as the USDX or virtual gold as a paper gold.
3. The USDX will become redundant.
4. The ability to pay off the debt of previous reserve currencies with market de-valued paper is facilitated.
5. Currencies as a whole will decline.
6. That decline will be the SDR versus the gold price.
7. The method of attacking a currency is inherent in attacking its debt.

The answer is simple even though the problem is complex.

Reduce all your currency positions into strength. Buy gold in all its forms other than US or Euro based in weakness.

Gold will trade at $1650 and above. The US dollar continues its march in phases towards worth-less and worthlessness.

Respectfully,

Jim

Posted at 5:17 PM (CST) by & filed under In The News.

Dear CIGAs,

The day the world as we knew it ended was "The Last Day of Lehman."

This disaster and disasters to come, now in process, are all based in spreads with one or more legs in OTC derivatives.

History will forget it, but OTC derivatives have already, in the final analysis, killed as many people as wars have.

Greece is no different than Iceland. Eventually the US dollar will come under the same pressure, using 40 states as the Achilles heel to kill the dollar.

Don’t for a moment assume the dollar has some granted immunity. It simply stands in line awaiting its selection while short positions in state debt are being placed.

Then what do we suppose we would find if we could actually audit the Fed’s currency swaps?
(Google translation of Spiegel Online)

"In early 2002 agreed to Greece’s debt managers and the U.S. bank GS Listen for information about a transaction in the so-called cross-currency swaps. They should in dollars and yen recorded debt to be exchanged into euro of around ten billion for a certain period and then back again. Unlike conventional swaps has been in this business working with fictitious exchange rates.

Greece was thus not the current euro equivalent of ten billion dollars or yen, but thanks to the much more favorable exchange rate, a significantly higher sum. GS gave the Greeks as an additional credit of up to an estimated one billion dollars. In the Athens of the additional debt statistics credit did not appear. The reporting rules by Eurostat, the Statistical Office of the European Union to record transactions in financial derivatives inadequate. GS to deliver to the controversial business, "no opinion". The Greek Finance Ministry did not respond to a written request."

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Jim Sinclair’s Commentary

Unless the summit meeting of planetary major central banks now taking place does not move towards what I have suggested, the euro attack will continue along with an attack on the US dollar by bashing the debt of 40 US states.

All world currencies will catapult downwards.

Your only protection against this inevitability is to sell all currencies on strength by buying gold on weakness.

If you cannot pay the price of gold then look towards those gold shares moving up the ladder of the 3 sections of 2 or 6 categories that command price.

Here is how the US dollar is open to critical attack just as the weaker euro stages are now being attacked.

Think the PIGS Are in Trouble? These 7 U.S. States Could Be Heading for Something Worse
February 06, 2010
Gregor Macdonald

The inevitable coming of the sovereign debt panic finally engulfed Europe this week as the derisively (or perhaps affectionately) named PIGS spilled their slop on the continent. But Portugal, Ireland,Greece, and Spain are hardly worthy of so much attention. In truth, they are little more than the currently favored proxies among the leveraged speculator community (cough) for the larger problem of all sovereign debt. Indeed, the credit default swaps on these smaller European satellite states were not alone this week in making large moves higher. UK sovereign risk rose strongly, and so did US sovereign risk. With a downgrade warning from Moody’s to boot.

Notable among three of the PIGS are their relatively small populations, and small contributions to either world or European GDP. While Spain has a population over 45 million, Portugal and Greece have populations roughly equal to a US state, such as Ohio–at around 10 million. And Ireland? The Emerald Isle has a population similar to Kentucky, at around 4 million. While the PIGS are without question a problem for Europe, whatever problems they present for Brussels are easily matched by the looming headache for Washington that’s coming from large, US states such as California, Florida, Illinois, Ohio, and Michigan.

I’ve identified seven large US states by four criteria that are sure to cause trouble for Washington’s political class at least for the next 3 years, through the 2012 elections. These are states with big populations, very high rates of unemployment, and which have already had to borrow big to pay unemployment claims. In addition, as a kind of Gregor.us kicker, I’ve thrown in a fourth criteria to identify those states that are large net importers of energy. Because the step change to higher energy prices played, and continues to play, such a large role in the developed world’s financial crisis it’s instructive to identify those US states that will struggle for years against the rising tide of higher energy costs.

First, let’s consider a large state that didn’t make my list. Texas didn’t make the list because its unemployment rate has not risen high enough to reach my cutoff: a state must register broad, U-6 underemployment above 15%, and currently Texas has only reached 13.7% on that measure. Also, Texas’s total energy production nearly perfectly matches its total energy consumption. Of course, Texas has indeed had to borrow more than a billion dollars so far to pay unemployment claims, thus technically bankrupting its unemployment trust fund. That meets my criteria. But, it’s instructive to note Texas’ energy production capacity in this regard, as that produces dollars. And one of the big reasons US states are under so much pressure, like their European counterparts, is that they cannot print currency. Being able to produce oil and gas is the next best thing to printing currency. So, Texas doesn’t make my list.

The seven states to make my list are California, Florida, Illinois, Ohio, Michigan, North Carolina, and New Jersey. Each has a population above 8 million people. Each has had to borrow more than a billion dollars, so far, to pay claims out of their now bankrupt unemployment insurance fund. Also, each state currently registers broad, underemployment above 15% as indicated by the U-6 measure for the States. And finally, each state is a large net importer of either oil, natural gas, electricity, or all three of these energy sources.

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Jim Sinclair’s Commentary

The East rises as the West falls.

As was said in the must see BBC special, The Last Day of Lehman, the West is f**ked and the dollar is gone.

As was said in Monty Guild’s recent report, do not confuse the future with the future of the West.

China to return to double digital growth in 2010, report
English.news.cn   2010-02-07 15:33:04

BEIJING, Feb. 7 (Xinhua) — A top Chinese think tank forecasted the nation’s economy would experience a mild rebound this year, with gross domestic product expanding around 10 percent year on year.

Among the three economic engines, investment is expected to contribute 6.3 percentage points to the GDP growth, while consumption will contribute 4.2 percentage points. Net export will drag down the growth rate by 0.5 percentage points, the Center for Forecasting Science of the Chinese Academy of Sciences said in a report issued Saturday.

The GDP may expand 11 percent in the first quarter and see a moderate slowdown in most of the remaining year, the report said.

The annual GDP growth rates for the second, third and fourth quarters are projected at 10.2 percent, 9.5 percent and 9.8 percent, respectively, it said.

Investment would continue to increase as a result of the government’s economic stimulus measures, with focuses in agriculture, transportation, and industries relating to people’s livelihood, but the annual investment growth would slow down from 30.1 percent in 2009 to 25 percent, the report said.

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Jim Sinclair’s Commentary

Interesting cover story to pander to politics.

G-7 Pledges Action to Force Banks to ‘Bear the Cost’ of Failure
February 06, 2010, 07:55 PM EST
By Gonzalo Vina

Feb. 6 (Bloomberg) — Group of Seven finance ministers said that they will agree to common rules to force banks to pay for possible failures after the financial crisis saddled taxpayers with trillions of dollars in liabilities.

Without giving details of how the plans will work, the ministers said the world’s most advanced economies should adopt common rules as long as other major countries also agree. Earlier today, a British official, speaking on condition of anonymity, said the G-7 is moving closer to an agreement on a bank insurance levy, one of a range of options proposed by the U.K. in November.

“We agreed to work together to make sure financial institutions bear the costs of their contribution” to the financial crisis, Canada’s Finance Minister Jim Flaherty told reporters after chairing two days of talks in the northern Canadian city of Iqaluit.

With government and central bank support for the global financial industry topping $11 trillion, according to the Organization for Economic Cooperation and Development, policy makers want banks to shoulder more of the costs in any future crisis. The International Monetary Fund will recommend to the G- 7 in April the best way to proceed.

As the world economy starts to emerge from the worst financial crisis since the Great Depression, the G-7 is seeking to recoup taxpayers’ funds used to prop up banks, and leaders have called for lenders to repay aid. U.S. President Barack Obama last month announced a levy on financial firms with assets of more than $50 billion.

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