Posted at 2:52 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

It looks to me like gold’s inability to climb back over $1,000, or at the very least get back over $960 to resume an uptrending move,  in the face of such an horrific financial meltdown, brought about a wholesale liquidation of stale longs who have bailed out in both disappointment and disgust. I will continue to maintain that only the Almighty knows how much of our own TARP money was used by the bullion dealers at the Comex to overwhelm the bids that came into that paper market. As I have said before, throw a few $billion here and a few $billion there in my direction and I could have all kinds of fun with a few commodity markets. Since all of the idiots who voted in favor of this execrable bailout haven’t the faintest clue as to where the money is going or for that matter, what it is being used for, is it that far-fetched to think that a portion of it is being used by these paragons of virtue, the bullion banks, to destroy the only thing honest that is left in the financial world, namely the yellow metal? These are some of the same people who would package their grandmothers together and sell them off to a hedge fund if they thought they could make a quick buck off of it.

No matter – technically gold is looking heavy and will need to hold above today’s session low to prevent a potentially bearish head and shoulders pattern from forming on the daily price chart. Rest assured if I can see it, those same folks mentioned above can see it also. If the chart painters can prevail and force that pattern to form, we are probably going to have to sit through another one of those frequent technical washouts that have marked this bull market in gold for many years. A case could be made from the charts that a move down to near the $800 level is not out of the question although we should see quality buying enter at  the 50% retracement level near $853 on down to the 100 day moving average around the $847 level. Gold needs to hold here and hold now!

I want to mention that I am seeing a great deal of red in just about all of the various commodity markets this morning with the energies getting hit particularly hard and the grains also swooning. That indicates index fund selling which is one of the reasons gold also dropped so severely. They bail out or move into most commodity markets in sync as their nature requires them to buy or sell a broad basket of commodities when filling orders for clients. Not to mention the fact that these bear raids on gold almost always coincide with either option expiration or rollover periods, the latter which we are now seeing as the twits that run the funds must roll from April to June gold or else take delivery, something which they are apparently allergic to but which would put an end to this endless charade at the Comex. Open interest indicates that the rollover has begun.

For those of you who are so inclined to continue filling my inbox with your foul mouthed emails whenever gold moves lower, please spare me your rants about how the US economy has hit bottom and the worst is behind us and thus gold is now doomed. If you really and sincerely believe that, then please, please, put all of your money into Treasuries and stop reading the web site.

The mining shares are actually holding up pretty well considering the mauling that gold is receiving today. Then again the day is yet young.

As I am still attempting to catch back up from vacation my comments will be abridged today. Please see the chart for some additional technical aspects.

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 2:17 PM (CST) by & filed under In The News.

Dear CIGAs,

Remember our repeated discussions a while back about the Slowest Train Wreck in History, Fannie and Freddie? How many times were the shorts run out? The answer is on every rally in the general indices.

Gold is exactly the same in reverse. At every opportunity the Comex paper shorts raid gold and run out the longs.

Just like the shorting of Fannie and Freddie turned out to be one of the best and safest plays in the market, long gold will also prove to be a safe play as it rises to my and maybe Alf’s goals, supported by Armstrong’s research.

Today you are being had yet again.

 

Jim Sinclair’s Commentary

Today’s decline in gold has nothing to do with SDRs.

There is nothing new in SDRs as they are 40 years old this year. Their introduction in 1969 was one of the reasons for the bull market in gold from 1968 to 1980.

What you are witnessing is the COMEX paper gold manipulators once again having their way with you.

Assuming no one of size wishes to take delivery out of the Comex warehouse, then this is a perma-experience as gold rises to $1224, $1650 and beyond.

It assures that very few of you will be left in gold or silver, having decided to go out into the cold. Some of you may even put all you have in SDR bonds.

Nothing assures a top in the US dollar better than SDRs.

Gold is a currency, has been a currency for all written history and will prove itself so in 2009.

The US dollar is as much a bubble as were tech stocks. The USDX is what an SDR is. The US dollar will trade at .8200, .7200, .6200 and below.

The frustration that the COMEX will deliver to you if unopposed will certainly take out 75% of whatever is left of the gold gang. It will prove once again that it is the Goldman’s of the world that make the real money in gold.

Today is a pure paper manipulation.

 

Jim Sinclair’s Commentary

I have two observations here:

1. The US dollar represents a banana republic monetarily.

2. Compared to the nominal amount of derivatives outstanding at above one quadrillion (past BIS truthfulness, a number that has since been degraded), 11 trillion is chump change.

3. If you throw your gold away for dollars you are mad victims of the majors on the Comex.

National debt hits record $11 trillion
By MANU RAJU | 3/17/09 6:42 PM EDT

The eye-popping national debt surpassed $11 trillion Monday, the largest in U.S. history.

The new Treasury Department figures on the national debt were released as the non-partisan Congressional Budget Office is expected to project that the annual budget deficit will be higher than previously estimated by the White House’s Office of Management and Budget. The debt, which refers to the cumulative amount of money the government owes, hit $10.9 trillion on Friday.

The whopping number has major ramifications for President Barack Obama, who is trying to push through a raft of big-ticket bills on health care, energy, education and climate change — while also attempting to stabilize the swooning economy.

Sen. Kent Conrad (D-N.D.), chairman of the Budget Committee, said Tuesday that the numbers could force Congress to make "adjustments" to Obama’s $3.6 trillion budget plan.

"It’s very important get a result for the American people and one that has the priorities that have been [announced] by the president in terms of reducing our dependence on foreign energy, that’s in all of our interests, excellence in education, health care reform and dramatic reduction of the deficit,” Conrad told reporters. “Those will be our guiding principles as we go forward, but as I say, we’ve not yet seen CBO’s new numbers. But I think we can all anticipate because they were done substantially later than OMB’s, that they are going to be more adverse. That that’s going to require all of us to make adjustments.”

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Jim Sinclair’s Commentary

Have you ever felt you might be on the wrong planet?

FDIC Criticizes Massachusetts Bank With No Bad Loans for Being Too Cautious
Tuesday , March 17, 2009

A Massachusetts bank that has defied the odds and remained free of bad loans amid the economic crisis is now being criticized by the Federal Deposit Insurance Corp. for the cautious business practices that caused its rare success.

The secret behind East Bridgewater Savings Bank’s accomplishments is the careful approach of 62-year-old chief executive Joseph Petrucelli.

"We’re paranoid about credit quality," he told the Boston Business Journal.

That paranoia has allowed East Bridgewater Savings Bank to stand out among a flurry a failing banks, with no delinquent loans or foreclosures on its books, the Journal reported. East Bridgewater Savings didn’t even need to set aside in money in 2008 for anticipated loan losses.

But rather than reward Petrucelli’s tactics, the FDIC recently criticized his bank for not lending enough, slapping it with a "needs to improve" rating under the Community Reinvestment Act, the Journal reported.

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Jim Sinclair’s Commentary

We do not need Russia to weaken the US dollar. The Fed and the Treasury are totally capable of that.

The dollar death nell is contained in:

SDRs (just as it was in 1969).

The Zimbabwean approach to monetizing your own debt as per the Fed purchase of US Treasuries.

Russia bids to topple cash system
MOSCOW
17/03/2009 1:00:00 AM

Russia has unveiled radical plans for sweeping global financial reforms designed to weaken US dominance and consign an ”obsolescent” world economic order to the past.

The Kremlin said in a six-page document addressed to the upcoming Group of 20 summit in London the downturn was the result of a collapse of the existing financial system due to poor management and inadequacy. It said the crisis showed the need to abandon traditional approaches and adopt collective and globally agreed decisions aimed essentially at developing a globalisation process management system.

The document spelled out five principles on which a ”new international financial architecture” should be based and offered proposals in eight specific areas for the G20 to consider, including reform of the international monetary and financial system, reform of the system’s institutions and tightening international regulation and financial supervision. Russia said the London summit should agree on ”parameters” of a new financial system but should be followed by an international conference to adopt conventions on new regulations. AFP

More…

 

Jim Sinclair’s Commentary

Ever heard of the political maxim of building a straw man and tearing it down to demonstrate you are doing something for the man in the street?

Outcry Builds in Washington for Recovery of A.I.G. Bonuses
By JACKIE CALMES and LOUISE STORY
Published: March 17, 2009

WASHINGTON — The bonuses that the American International Group awarded last week were paid to 418 employees and included $33.6 million for 52 people who have left the failed insurance conglomerate, according to the office of the New York attorney general.

The company paid the bonuses, including more than $1 million each to 73 people, to almost all of the employees in the financial products unit responsible for creating the exotic derivatives that caused A.I.G.’s near collapse and started the government rescue to avoid a global financial crisis.

A.I.G. has received nearly $200 billion in federal bailout funds.

The information adds to the firestorm confronting the Obama administration and Congress since the weekend disclosure that A.I.G., almost 80 percent owned by the government, paid out $165 million in bonuses.

Even before the New York attorney general, Andrew M. Cuomo, divulged the new data on bonus payments in a letter to Representative Barney Frank, the Massachusetts Democrat and chairman of the Financial Services Committee, the White House and Congress separately were rushing to get out in front of the mounting public furor. Officials and lawmakers condemned A.I.G., pointed fingers at each other and promised speedy action to recoup the taxpayers’ money.

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Posted at 12:10 PM (CST) by & filed under Guild Investment.

Dear CIGAs,

OIL PRICES

Each year, we talk to many informed sources about oil and we attend many oil and energy conferences.  As a result of extensive research, we believe that oil prices have seen their low for 2009.

Some readers may be asking themselves "how is this possible?"  The world economy is in a serious recession.  Major countries, such as the U.S., all major European countries, and many others are in what many observers are starting to call a depression.  The few growing countries like China and India are not growing fast enough to support the rest of the world.  How can oil prices be bottoming?

Let’s review a little history – As you all remember, oil peaked in July 2008 at $147/ barrel.  It then proceeded to fall, declining to the $34/barrel range last month, before rallying to the current level of about $45/barrel.  In January 2008, expert sources that we follow were saying that oil would peak in June 2008.  Although they were a little low on their estimate of the eventual peak price, these experts pointed out correctly that events in Russia in 2006 and 2007 were the main cause of oil’s rapid price rise in late 2007 and early 2008…and that the rise was likely to be short lived.

EVENTS IN RUSSIA?

Saudi Arabia is well known as being the world’s swing producer of oil, a role that they have undertaken for decades.  When world oil production is too low and prices too high, Saudi Arabia often lifts production to lower world prices.  This keeps the demand for their large, relatively inexpensive oil reserves strong, and it keeps nations from pursuing alternatives.  On the other hand, when oil prices are too low, Saudi Arabia will often cut production to buoy world prices so that oil trades in a more stable (but still quite profitable) range. 

In 2006 and 2007, Russia repeatedly boasted that they could produce 2½ million barrels more oil per day than they were producing.  These production claims turned out to be a ploy.  This posturing was intended to make Russia look more powerful to Europe, which is a big consumer of Russian oil and gas, and to keep the Russians influential among the former Soviet states which were now independent.  In short, Russia was using their claim that they could produce more oil, as a foreign policy lever to keep former Soviet states in their realm of influence and to leverage their power with Europe. 

Saudi Arabia was taken in by the Russian announcements, and began to cut production to stabilize prices.  The Saudis believed that the extra Russian production would create an oil surplus and a big price decline.

Of course Russia was unable to produce the extra 2 ½ million barrels a day.  Thus, world supply, instead of seeing the surplus that Saudi Arabia feared, started to see a substantial shortage of oil.  This drove the price of oil relentlessly higher.

By late 2007, our source says that Saudi Arabia realized their mistake and had begun to produce more oil.  The problem with oil production increases and decreases is that they are slow to manifest in the end markets.  It takes months to increase production, and it takes even longer for world inventories to be filled and speculators to realize that the shortage of oil has ended.

It was not until July 2008 that investors and oil consumers became aware that Saudi Arabia had increased production enough to fill much of the worlds’ oil storage capacity. Concurrently, a world economic decline was taking place and demand for oil in transportation, manufacturing, and other areas was falling…clearly oil was overpriced.  In just eight months, the price of oil fell dramatically to $34 / barrel.

This brings us to late 2008 and early 2009.  Since September 2008, OPEC, led by Saudi Arabia has cut daily production by about 4.2 million barrels per day.  During the same period, worldwide demand has only fallen by half as much.  The production cuts have removed much of the surplus of supply over demand.  Storage of oil has been drawn down, especially at major hubs such as Cushing, Oklahoma in the U.S.

Consumers of energy, such as transportation organizations, utilities, and manufacturers have once again begun to purchase energy for future delivery so that they will have available supply at an acceptable price.

In summary, we may be in a recession in some parts of the world, and a depression in other parts, but we still use energy…and current prices appear to be unacceptably low.

Crude Oil-NYMEX

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In our opinion, new oil cannot be discovered at a price where it can be delivered to consumers for less than about $50 per barrel.  If we are correct in our analysis, oil prices have to rise to the level where oil professionals will expend capital to search for more supplies.  By 2020, the U.S. Dept of Energy says oil production will go to 100 million barrels per day.  We believe this is an impossibly optimistic number.  Unless world oil prices skyrocket to the level where very expensive oil resources like the oil sands of northern Canada can be mined, this target is grossly off the mark.  Remember, depletion causes a decrease in global oil production from existing wells each year, and depletion is relentless.  The oil market analysts that we respect believe that supply will go to about 75 million barrels per day by 2020.  In 2020, we anticipate that world oil demand will be greater than production by about 4 million barrels per day.  This implies that oil prices will go much higher over the next 11 years.

OUR BEST GUESS IS THAT OIL WILL AVERAGE $60 per barrel over the next two years.  It will fluctuate around this level to be sure, but we see $60 as an average.  We plan to buy oil stocks on declines over the net few months.

U.S. BUDGET

Mr. Obama’s budget puts federal government spending from 20% of GDP to almost 30% of GDP within 2009.  All we can say is WOW! 

In February, the stock market collapsed when the budget was announced. By early March it had become extremely oversold.  It was set up for the welcome rally, which we are currently experiencing.  We will enjoy the rally while it lasts, it could easily lead to a 25-40% rally.  In our opinion, after the rally, we will return to the bear market environment which we have seen since late 2007. 

FINANCIAL PROTECIONISM

This is a major problem that has recently been noted in the excellent publication The Institutional Strategist by its proprietor, Larry Jeddeloh.  The web site is: www.tisgroup.net

Why do people complain if U.S. banks make loans to Dubai?  It is a global world, and banks everywhere have long made loans to governments and companies outside of their own borders.  If financial protectionism continues and grows, it will be like trade protectionism, a result of poorly thought out legislation.  We guarantee that it will be devastating to world economic well being and will substantially extend the current economic malaise.

SUMMARY

The current stock market rally was expected, and we believe that it can carry stocks about 25% above their recent lows, which will still leave them down for 2009.  We recently did some bottom fishing in financial shares and energy shares, and have been enjoying the rally.  These are short term trading positions only because longer term, we expect the global markets will continue to struggle under the weight of weak economic activity.

For the long term we believe that gold, oil and agriculture investments will provide long term positive results.  We still see the U.S. dollar as a potential time bomb.  At some time, the buyers of the trillions of dollars of U.S. bonds being floated to finance the federal debt, will balk and demand a lower currency or higher interest rates before they buy any more bonds.  If the U.S. were to raise interest rates, the economy would be in danger of collapse, so the only option is a lower dollar.  The Chinese, who are nobody’s fools, are aware of this and nervous about it as well.  To read more, click this link: Financial Times

 

REMINDER, FOR A LIMITED TIME…

For no charge, as a service to our readers, we will be happy to examine your current investment portfolio, and explain how we might restructure it to meet your needs for income and capital appreciation in the current environment.  In recent weeks, we have received a number of requests to review investment portfolios and have been responding to them as time permits.  In order to provide a more meaningful evaluation of your portfolio, we will need additional information about your overall financial picture.  Please give us a call if we can help you in this regard.  

Thanks for listening.

Monty Guild and Tony Danaher
www.GuildInvestment.com

Posted at 10:58 PM (CST) by & filed under General Editorial.

Dear CIGAs,

This is going to be interesting as the IMF does not have the power to create money like central banks do.

I had the privilege of writing the speech many years ago when SDRs were first introduced. The same problem with SDRs then is the same problem now – they are backed by nothing. SDRs are nothing more than pure paper and are incapable of offsetting the fear of such paper

Special Drawing Rights:

An international type of monetary reserve currency, created by the International Monetary Fund (IMF) in 1969, which operates as a supplement to the existing reserves of member countries. Created in response to concerns about the limitations of gold and dollars as the sole means of settling international accounts, SDRs are designed to augment international liquidity by supplementing the standard reserve currencies.

Investopedia Says:

You can think of SDRs as an artificial currency used by the IMF and defined as a "basket of national currencies". The IMF uses SDRs for internal accounting purposes. SDRs are allocated by the IMF to its member countries and are backed by the full faith and credit of the member countries’ governments

More…

 

Basically an SDR is an accounting transaction with an index mix of currencies originally devised to replace gold settlement of trade transactions with a faux currency unit.

Forget the media PR. Today it is in anticipation of large dollar and/or US treasury international sales hoping that rather than flooding the market with dollars in exchange for Euros, Swiss Francs, Cando’s and so on that SDRs would be sought after.

The problem with this reasoning is the same as it was at its last big introduction over 35 years ago. It is paper, worse an index against swaps, that lacks the ability to attract confidence required as we move into a hyperinflationary world. This was the meat of the objecting speech on the Senate floor more than 35 years ago and is the weakness today.

This is not in any way anti-gold even if it is advertised as paper gold as it was 35 years ago.

SDRs were another scheme that gave birth to gold going from $40 to $887.50. They flopped then (they did not form the international single currency then) and will fail again. Their only impact is short term based media and governmental hype.

It is clear that there is no practical solution to this global OTC derivative meltdown. SDRs exposed the fact that our financial leaders are now flailing in the breeze. They would be well advised to devise anything new rather than seek to recreate a failure.

If used for quantitative easing it would indicate the introduction of Zimbabwean style confetti money.

IMF poised to print billions of dollars in ‘global quantitative easing’
The International Monetary Fund is poised to embark on what analysts have described as "global quantitative easing" by printing billions of dollars worth of a global "super-currency" in an unprecedented new effort to address the economic crisis.
By Edmund Conway
Last Updated: 9:07AM GMT 16 Mar 2009

Alistair Darling and senior figures in the US Treasury have been encouraging the Fund to issue hundreds of billions of dollars worth of so-called Special Drawing Rights in the coming months as part of its campaign to prevent the recession from turning into a global depression.

Should the move, which is up for discussion by the summit of G20 finance ministers this weekend, be adopted, it will represent a global equivalent of the Bank of England’s plan to pump extra cash into the UK economy.

However, economists warned that the scheme could cause a major swell of inflation around the world as the newly-created money filters through the system. The idea has been suggested by a number of key figures, including billionaire investor George Soros and US Treasury adviser Ted Truman.

Simon Johnson, former chief economist at the IMF, said: "The principle behind it is that everyone would get bonus dollars and instead of the Federal Reserve having to print them, everyone gets them.

"The objective is to create a windfall of cash. However if everybody goes out and spends the money it could be very inflationary."

Simon Johnson, former chief economist at the IMF, said: "The principle behind it is that everyone would get bonus dollars and instead of the Federal Reserve having to print them, everyone gets them.

"The objective is to create a windfall of cash. However if everybody goes out and spends the money it could be very inflationary."

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Posted at 10:37 PM (CST) by & filed under In The News.

Dear CIGAs,

Here are this morning’s news highlights:

1. There is no inflation. Oh yeah? There is $9.5 trillion in inflation that will transmit to prices for which there is no practical cure.

2. Not to worry, the Fed will drain as inflation starts. Oh yeah? The Fed is going to drain trillions from the world economy? That is total non-sense. There is no tool in the Fed’s power to pull off that miracle without causing a second disaster.

3. The mark to market rule of FASB 157 appear as if it is going to be modified so that value will be computer modeled according to assumptions of lines of income to maturity of SIVs, OTC derivatives. As a product of this value cartoon, no balance sheet for anyone from GE to the financials can be relied upon as factual. Who knows, maybe the world wants to be lied to.

4. Talk is ramping up as a PR campaign concerning the benefits of the US Fed buying tons of US Treasuries to hold rates. I might add as international demand for Treasuries falls that will threaten rates as that would force the borrowing to inland demand.

5. Housing starts are up which simply means that there will be more apartments and condos in inventory. Sales are in the trash can as building increases means more inventory. If builders have or can get building loans they would build them regardless of what the potential to sell is. Builders live off the building loan.

The COMEX gang was on gold the instant the PPI came out but that will continue until more deliveries are taken out of the COMEX warehouse.

 

Jim Sinclair’s Commentary

This has caused short term weakness, however it is a confirmation of the longer term uptrend.

Hyperinflation cannot be avoided and would sustain Alf’s objectives. There is no comparison here at all to what a top in the gold price looks like.

There is an axiom that if a market lets you out easily, you should stay. If a market offers you a ragged exit only, you should get out.

If Mr. Hulbert needs to find a person quite positive on gold he only needs to speak to me.

Where have all the gold bugs gone?
Commentary: Huge shift among gold timers from bull to bear
By Mark Hulbert, MarketWatch
Last update: 12:01 a.m. EDT March 17, 2009

ANNANDALE, Va. (MarketWatch) — Call it the retreat of the gold bugs.

Over the past three weeks, the editor of the average gold timing newsletter I monitor has hastily jumped off the bullish bandwagon. And a not insignificant number have taken the occasion to furthermore jump onto the bearish bandwagon.

At least from the point of view of contrarian analysis, this is good news for gold.

Consider the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended gold market exposure among a subset of short-term gold timing newsletters tracked by the Hulbert Financial Digest. The HGNSI’s latest reading is minus 16.5%, which means that the editor of the average gold timing newsletter is recommending that his subscribers allocate 16.5% of their gold portfolios to shorting the market.

Three weeks ago, in contrast, the HGNSI stood at 60.9%. So in just 15 trading sessions, the average recommended gold market exposure has fallen by more than 77 percentage points.

What sins did gold bullion commit to elicit this huge of a reaction? Failing to rise convincingly above the psychologically important $1,000 barrier, apparently: Spot gold in the futures market was able to close above that level for just one day (Feb. 20), and only barely at that ($1,001.70). And it then dropped.

Still, gold didn’t fall off a cliff. It’s currently just 8% below its Feb. 20 close, after all. Declines of that magnitude typically do not lead to such marked shifts in sentiment from bulls to bears.

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Jim Sinclair’s Commentary

Well UBS? At least it makes for some good reading.

UBS Investment Research
Q-Series®: Gold

What is next for gold?

Where could prices go?
We believe that the current environment is one which can best be characterised as having a ‘low margin of error’ for central bankers; with the prospects for deflation/inflation as becoming more extreme. The high potential for policy error is generating considerable interest in certain assets which are perceived as ‘stores of value’ including gold.

Our econometric model indicates upside risk
Using a proprietary econometric model we have generated a probability cone for the future possible price path for gold. Using different environments for the level of inflation volatility, US dollar and absolute level of inflation we have determined that future returns on gold are likely to be positively asymmetric, with potential upside to US$2,500/oz.

Exposure to gold recommended
Our asset allocation team has moved gold to overweight from neutral. Given the broad uncertainties in the current macro climate we believe that investors should look to gold given its historic tendency to act as a hedge against these risks.

Equity performance
Our assessment of equity performance from 1900 suggests that gold equities are strong performers versus the market during periods of financial risk. During the 1929 crash, for example, Homestake Mining strongly outperformed the S&P. Preferred gold mining equities include Goldcorp, Anglogold and Lihir.

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Jim Sinclair’s Commentary

AIG is not the only entity that will not repay one penny of the trillion the Treasury and Fed have provided (of course at no risk to the Treasury or Fed). What that means is you, I and our grandchildren are going to pay it back. Keep in mind the funds have not disappeared into a black hole somewhere. All that money has gone to the winners of the OTC derivatives. Yes, all that money.

AIG likely won’t be able to pay taxpayers back
The Associated Press
8:06 PM EST March 16, 2009

Pressure is mounting on the government to revise its bailout of AIG to ensure that taxpayers are repaid as much as possible of the $170 billion lent to the troubled insurer.

Experts warn we shouldn’t expect to get much back.

The problem stems from AIG’s obligations to its trading partners. So far, the hobbled insurance giant has honored in full its contracts with U.S. and foreign banks. It’s paid out more than $90 billion in taxpayer money to keep some of the biggest names in finance from losing money on bad bets linked to subprime mortgages and other risky assets.

As the cost of the rescue swells, experts says it’s becoming harder to envision a scenario in which the government could recoup its full investment. Even though the AIG payouts to major banks have angered critics of the bailout, it might be legally impossible to claw back any of the billions already doled out.

"A contract is a contract," said Russell Walker, a risk management professor at Northwestern University. "That money all went to people who bought protection from AIG."

The government agreed to uphold those contracts when it seized control of American International Group in September. It argued that failing to repay the debts of the globally interconnected company could cause catastrophic losses at big international banks, potentially toppling the financial system.

Scrutiny of AIG’s dealings with its trading partners comes after revelations over the weekend that the insurer plans to pay out tens of millions in executive bonuses. President Barack Obama on Monday accused AIG of "recklessness and greed." He pledged to try to block it from handing out the bonuses, which AIG insists it’s contractually obligated to pay.

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Jim Sinclair’s Commentary

This is only one of the problems but it is one that can have the most significant impact on non Wall Streeters. It is a significant risk to the social order.

Many of these people are not sheep and will walk to the slaughter obediently, subserviently and quietly.

Hidden Pension Fiasco May Foment Another $1 Trillion Bailout
By David Evans

March 3 (Bloomberg) — The Chicago Transit Authority retirement plan had a $1.5 billion hole in its stash of assets in 2007. At the height of a four-year bull market, it didn’t have enough cash on hand to pay its retirees through 2013, meaning it was underfunded to the tune of 62 percent.

The CTA, which manages the second-largest public transit system in the U.S., had to hope for a huge contribution from the Illinois state legislature. That wasn’t going to happen.

Then the authority found an answer.

“We’ve identified the problem and a solution,” said CTA Chairman Carole Brown on April 16, 2007. The agency decided to raise money from a bond sale.

A year later, it asked Illinois Auditor General William Holland to research its plan. The state hired an actuary, did a study and, on July 17, concluded that the sale of bonds would most likely result in a loss of taxpayers’ money.

Thirteen days after that, the CTA ignored the warning and issued $1.9 billion in bonds. Before the year ended, the pension fund was paying out more to bondholders than it was earning on its new influx of money. Instead of closing its funding gap, the CTA was falling further behind.

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Jim Sinclair’s Commentary

This is also securitized as OTC derivatives. It is another problem to add to the pile of items not going away.

U.S. credit card defaults rise to 20 year-high
Mon Mar 16, 2009 6:15pm EDT
By Juan Lagorio

NEW YORK, March 16 (Reuters) – U.S. credit card defaults rose in February to their highest level in at least 20 years, with losses particularly severe at American Express Co and Citigroup amid a deepening recession.

AmEx, the largest U.S. charge card operator by sales volume, said its net charge-off rate — debts companies believe they will never be able to collect — rose to 8.70 percent in February from 8.30 percent in January.

The credit card company’s shares wiped out early gains and ended down 3.3 percent as loan losses exceeded expectations. Moshe Orenbuch, an analyst at Credit Suisse, said American Express credit card losses were 10 basis points larger than forecast.

In addition, Citigroup Inc — one of the largest issuers of MasterCard cards — disappointed analysts as its default rate soared to 9.33 percent in February, from 6.95 percent a month earlier, according to a report based on trusts representing a portion of securitized credit card debt.

"There is a continued deterioration. Trends in credit cards will get worse before they start getting better," said Walter Todd, a portfolio manager at Greenwood Capital Associates.

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Jim Sinclair’s Commentary

The Talking Heads, although somewhat cautious, are using the increased building of condos and apartments as an indicator of a bottom. They are forgetting the following.

Corporate meltdown leaves renters in limbo
Large apartment complexes abandoned to receivership and unruly weeds
By Kari Huus
updated 3:26 a.m. PT, Mon., March. 16, 2009

Nicholle Krause first noticed the weeds sprouting in the usually well-manicured grounds of her 320-unit apartment complex in Chandler, Ariz., in December. Soon, signs of neglect began multiplying: Garbage spilled over from the dumpsters, the water in the swimming pool turned a slimy pea green and the grounds were infested by swarms of bees — especially alarming because Krause is severely allergic to bee stings.

“I couldn’t even go outside to enjoy where I live,” said Krause, a 21-year-old office worker who pays $827 a month for a one-bedroom apartment with garage space. “I shouldn’t have to pay $800 a month to live in a … hole.”

It wasn’t until early March that Krause and other residents learned why the complex – the alluringly named Alante at the Islands — was rapidly going to seed. The property owner, Irvine, Calif.-based Bethany Holdings Group, had abandoned the complex and a dozen other large rental properties in the greater Phoenix area after defaulting on hundreds of millions of dollars in loans.

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Jim Sinclair’s Commentary

Seems the Greeks take financial misconduct, or plain stupidity, somewhat more seriously than New Yorkers.

Greek extremists threaten more bombings after Citibank attacks

ATHENS (AFP) — A Greek extremist group known for its violent attacks has threatened to carry out more bombings in the wake of two recent strikes targeting US banking group Citibank.

In an eight-page proclamation published in Greek weekly Pontiki, far-left group Revolutionary Struggle said its aim remained to foment "revolution" and use the global economic crisis against capitalism.

"We intend to continue timed (bomb) attacks," the proclamation said.

"We need to rid ourselves for good of all the scum of economic and political power so that humanity can free itself from these criminals.

"We must create (a mass movement) here and now so that the crisis can become the system’s tomb," it added.

Greece’s most dangerous far-left organisation earlier admitted responsibility for two attacks against Citibank targets in north Athens that caused no injuries.

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Jim Sinclair’s Commentary

This is hard to believe.

Should Geithner resign it would be critically bad for expectations of Obama’s ability to lead any business recovery.

Internationally, it would be an embarrassment to his administration that would be difficult if not impossible to overcome.

Geithner "Out Of The Loop," Resignation Talk Begins
Henry Blodget
Mar. 17, 2009, 2:25 PM

A week ago, we lost patience with Tim Geithner and called for him to be fired. He won’t be fired, of course–throwing him under the bus only a month or so into his tenure would embarrass the Obama administration–but we have now heard the first public discussion of a possible resignation.

Why might Tim Geithner resign?

· He still has no coherent plan to fix the banking system

· He has convinced no one that he’s the right man to lead us out of this.

· He helped design the past administration’s failed bailouts

· He was the architect of the original AIG bailout

· He tacitly helped cover up the AIG "counterparty" bailout beneficiaries for 6 months

· He approved the latest round of AIG bonuses last week (according to AIG)

At the very least, Geithner needs to answer for his role in the original AIG bailout, which has been a disaster, as well as the counterparty cover-up.

In September, Geithner and Hank Paulson engineered an AIG bailout in which Paulson’s firm (and one of Geithner’s patrons on the New York Fed) secretly received $13 billion of taxpayer money that no taxpayer was told about. Now that taxpayers have found out about it, they are justifiably pissed.

In any event, Republicans have been emboldened by Geithner’s stumbles, and they’re getting closer to calling for his head:

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Jim Sinclair’s Commentary

Take your pick. There are so many black holes out there that our financial leadership has hit the panic button (SDRs). This speaks quite poorly for the grand hope that this new administration can save the USA (or world) from anything.

Freddie Mac: The Government’s Next Black Hole?
By STEPHEN GANDEL
Tuesday, Mar. 17, 2009

AIG is to date the most expensive corporate bailout in American history, requiring $180 billion in government funds. But it may soon have competition. Last week mortgage giant Freddie Mac said it had lost $50 billion in 2008 alone. A look at the company’s books suggests the government will have to spend at least triple that much to save the financial firm from collapse. If the housing market worsens, the tab could be even larger.

"Freddie’s portfolio of [mortgage] insurance is more risky than the market was led to believe," says Paul Miller, an analyst at FBR Capital Markets. Sister company Fannie Mae lost even more last year, with $58.7 billion of red ink. But Fannie was better capitalized than Freddie going into the credit crunch. So even though Freddie by many measures is smaller than Fannie, the problems at Freddie will probably end up costing more.

Citigroup and other banks have also lost money and will need more capital to survive. But in those cases it’s not clear who will take the hit — shareholders, bondholders or the government. In the cases of AIG, Freddie Mac and Fannie Mae, however, there is no question where the money will come from. Freddie and Fannie were taken over by the government and put into conservatorship last fall. AIG is currently 80% owned by the government. The losses at those companies are now taxpayer losses.

And like AIG, Freddie has had to go back to the government a number of times with cup in hand. The mortgage giant has already received $14 billion in government aid. After a fourth-quarter loss of $24 billion, the company said it needed an additional $31 billion from the government to keep the lights on.

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Posted at 5:57 PM (CST) by & filed under General Editorial.

My Dear Friends,

The Death of the Dollar is inherent in its present strength.

No matter how strange this may sound to you it is totally correct.

Dollar strength has facilitated the most ill advised and inflationary shift in monetary policy in human history.

Reading the following two articles is a MUST for those that are confused by the recent dollar strength.

Please note this article was reprinted by China Business News, not CNN or Bloomberg and certainly not by Mr. Cramer.

It is the best I have seen.

Respectfully,
Jim

 

DOLLAR CRISIS IN THE MAKING, Part 1
Before the stampede
By W Joseph Stroupe

Increasingly ominous clouds are gathering in what could soon be the perfect storm against the United States dollar and against the present dollar-centric global financial order.

This is not shaping up to be a storm that anyone is trying to initiate, not even those who are actively driving for a new global financial order that is no longer centered on the dollar. Instead, it will result from a correlation of forces arising out of the deepening global financial and economic crises, coupled with recurring and conspicuous miscalculation on the part of some of the world’s political, financial and economic leaders.

The storm has the potential to cause upheaval on a grand scale, opening the door to swift, and largely uncontrolled, fundamental transformation.

As is widely recognized, the present financial order that is inordinately reliant on the US dollar must some day give way to a new order that is more balanced, stable, resilient and reliable, one that is based on multiple currencies and that therefore won’t be plagued by the extremely dangerous structural drawback of an increasingly worrisome elemental single point of failure (the dollar).

But if the current dollar-centric financial order should become more seriously shaken than it already has been, perhaps even suffering a collapse, as a casualty of the present deepening global crisis, then the transition to any new global financial order is most likely to be disorderly, disruptive and unmanageable rather than gradual and orderly.

We can hope – but cannot be at all confident – that world leaders and global investors will act coherently, cohesively and intelligently enough in this crisis so as to ensure that the policies and actions being undertaken will not put at further serious risk the fundamental structure of the current dollar-centric financial order, and that they will instead be effective in bolstering deteriorating global confidence in the present order and in the safety of the dollar, at least until we get through this crisis.

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DOLLAR CRISIS IN THE MAKING, Part 2
The not-so-safe haven
By W Joseph Stroupe
This is the second article in a three-part report.
PART 1: Before the stampede

With regard to whether Chinese advisors and experts think the US government is creating a dangerous and unstable Treasuries bubble, note this statement:

"Buying US government bonds amid an economic downturn, [a purchase] that is not based on the sound performance of the US economy itself, indicates a huge bubble," said Zuo Xiaolei, chief economist of China Galaxy Securities. [italics added]

Chinese officials express mounting alarm at the likely negative near-to-medium term effects upon the dollar, and upon their huge reserves, of the spend-spend-spend policy emanating from Washington:

The huge deficit would not immediately lead to inflation, since banks were likely to curb lending as the financial system remained weak, Zuo said. "It might be two or three years before the huge deficit leads to serious inflation." Analysts noted that if the stimulus plan didn’t accomplish its goal of restarting growth, the US government would have to ease its large fiscal burden by borrowing more and issuing more dollars, instead of relying on economic growth.

Huge Treasury bond issues would exacerbate the depreciation of the US dollar and world wealth. Such developments would be more catastrophic than the global financial crisis, according to Zhang Yansheng, head of the International Economic Research Institute under the National Development and Reform Commission, the chief economic planning body in China.

A weaker US dollar would hurt that currency’s international status, he said, which would "not be in the interests of the United States and other countries and would exacerbate the crisis." Said Zuo: "US dollar depreciation is inevitable in the long run. China should prepare and reduce its holdings of US Treasuries to a proper size."

In a strong hint that China’s central bank won’t be adding to its holdings of Treasuries at anywhere near the rate it did in 2008, that it may already have clandestinely achieved more diversification out of the dollar than is widely known, and may well find ways to further decrease its holdings without explicitly telegraphing its moves, note this statement:

Fang Shangpu, deputy director of the State Administration of Foreign Exchange, noted Wednesday that the report released by the US Treasury of the amount of government bonds held by China included not only the investment from the reserves, but also from other financial institutions. It might be a hint that Chinese government is not holding as much US government bonds. [Italics added.]

China is managing its foreign exchange reserves with a long-term and strategic view, Fang told a press briefing. "Whether China is to purchase, and to buy how much of the US government bonds, will be decided according to China’s need," Fang said. "We will make judgment based on the principle of ensuring safety and the value of the reserves," Fang said.

The foregoing quotes beg the following questions:

· What about the widely held view, which is even at times recited by Chinese central bank officials themselves, that says China has no choice but to maintain its holdings of Treasuries and to keep buying more, lest any significant slowdown in its rate of purchases risk triggering a global dollar panic?

· Is that view correct, or does China’s central bank actually have other viable options, as Luo Ping and other officials insist that it does?

· What might those other options be, are they really viable, and what might happen to the dollar if China’s central bank began to exercise its professed "other options"?

· What kind of scenario might prompt China’s central bank to attempt to do so?

· Could its enactment of "other options" be carried out in a way that would be difficult to trace, so that China would avoid triggering a dollar panic while it steadily reduced its exposure to the dollar over the coming months?

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Posted at 8:06 PM (CST) by & filed under In The News.

A Word of Caution:

Some writers are attempting to take Armstrong’s cycle work and interpolate that to gold using a standard 8.6 year approach.

There is nothing standard about what is out there today.

I would suggest that we should listen to the man himself.

Armstrong looks to June as a very important period for gold. Should that period be a key time for gold the following high would be in the area of $4000.

Barrick settles lawsuit over misleading investors
Joe Schneider, Bloomberg
Published: Monday, March 16, 2009

Barrick Gold Corp., the world’s biggest gold producer, agreed to settle a lawsuit alleging it misled investors by claiming that its hedging program wouldn’t hurt profits as gold prices rose.

Terms of the settlement haven’t been released because Toronto-based Barrick must conclude talks with its insurers before signing the accord, David Brower, a lawyer for investors who sued, said Monday in a letter to U.S. District Judge Richard Berman in New York. Judge Berman postponed a settlement hearing, scheduled for Tuesday, until March 31.

Barrick hedged production by entering into contracts to sell some gold before it was mined to protect against a drop in bullion prices. Shareholders alleged in the lawsuit filed in 2003 that the program was "speculative" and "risky," resulting in a drop in the share price as gold prices rose.

Judge Berman allowed that part of the suit to proceed in a ruling on Jan. 31, 2006, when he threw out claims that Barrick was involved in anticompetitive conduct.

Former Barrick chief executive Randall Oliphant, chief financial officer Jamie Sokalsky and former chief operating officer John Carrington were named in the suit.

Mr. Oliphant was fired in February 2003, after Barrick’s stock fell 17% in the previous year as the price of gold surged to a six-year high. Mr. Oliphant’s successor, Greg Wilkins, abandoned the hedging program.

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In Downturn, China Exploits Path to Growth
By KEITH BRADSHER
Published: March 16, 2009

GUANGZHOU, China — The global economic downturn, and efforts to reverse it, will probably make China an even stronger economic competitor than it was before the crisis.

China, the world’s third-largest economy behind the United States and Japan, had already become more assertive; now it is exploiting its unusual position as a country with piles of cash and a strong banking system, at a time when many countries have neither, to acquire natural resources and make new friends.

Last week, China’s prime minister, Wen Jiabao, even reminded Washington that as one of the United States’ biggest creditors, China expects Washington to safeguard its investment.

China’s leaders are turning economic crisis to competitive advantage, said economic analysts.

The country is using its nearly $600 billion economic stimulus package to make its companies better able to compete in markets at home and abroad, to retrain migrant workers on an immense scale and to rapidly expand subsidies for research and development. Construction has already begun on new highways and rail lines that are likely to permanently reduce transportation costs.

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Jim Sinclair’s Commentary

Don’t be fooled, these are not the counter parties. These are the brokers for the counter parties. This article is more convoluted fabrications.

A.I.G. Reveals Its Biggest Counterparties
March 15, 2009, 5:16 pm
Update | 6:23 p.m.

The American International Group on Sunday released the names of financial institutions that benefited last fall when the Federal Reserve saved it from collapse with an $85 billion rescue loan and then 3 subsequent bailouts.

The disclosure included counterparties to both its credit default swap operations and its securities lending businesses, both of which contributed heavily to A.I.G.’s troubles, as well as to muncipalities who participated in certain investment programs. All told, Sunday’s statement detailed payments of more than $78 billion, all made using government loans. (Read the disclosure by A.I.G. after the jump.)

Many critics of the company have demanded the names of A.I.G.’s counterparties as the insurer received government money totaling $170 billion. A.I.G. said in a statement that it made the disclosure in consultation with the Federal Reserve.

“Our decision to disclose these transactions was made following conversations with the counterparties and the recognition of the extraordinary nature of these transactions,” Edward M. Liddy, A.I.G.’s government-appointed chief executive, said in a statement.

Time and again, the rationale given for bailout out A.I.G. was that its credit default swap agreements — essentially insurance contracts on mortgage-backed securities — were so interwoven into the global financial web that to let the insurer fail would create chaos.

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