Posted at 3:56 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

It looks like there is not going to be any more gold coming to market… As you said before, all this is BS about CB sales. You said this is what occurred in the 70s and would occur in 2008-2012 as far back as 2006.

Best,
CIGA BT

Central Bank net gold sales show huge drop in first half 2009
A report by GFMS for Societe Generale suggests the volume of Central Bank gold sales this year is likely to be among the lowest on record.
Author: Lawrence Williams
Posted: Tuesday , 04 Aug 2009

LONDON – In a report released Monday, precious metals consultancy GFMS, for Societe Generale, looked at the recent rate and volume of gold sales from official sources and concluded that in the first half of the current year the net sales volume was a relatively minuscule 39 tonnes – down a massive 73% year on year. Indeed in the second quarter, GFMS estimates that banks were net buyers of gold after being net sellers in the first quarter.

In effect, the majority of these sales came from within the Central Bank Gold Agreement, with its signatories selling some 92 tonnes, but this was offset by net purchases from Central Banks and institutions in other countries which turned out to be net buyers of around 56 tonnes. There were also a few tonnes of sales from banks outside the CBGA. GFMS notes that all these figures may be subject to alteration due to the lag that often exists between Central Bank activity in the gold market taking place and it being identified.

The biggest sellers of gold in the period included France which had announced some time back that it would sell 600 tonnes over the life of the five-year CBGA, which ends on September 26th. France sold some 44 tonnes in the first five months of the year and it is likely, says GFMS, that it would also have sold a little more in June. With a total of 576 tonnes of sales over nearly 5 years under the Agreement up until May that left only a further 24 tonnes to sell June to September.

More…

Posted at 7:38 PM (CST) by & filed under In The News.

The problem with socialism is that you eventually run out of other people’s money.
–Margaret Thatcher

 

Dear CIGAs,

Here are some tidbits for today:

1. 33 camps are shut down in Maine, some with up to 100 campers with H1N1 in isolation.

Please prepare yourself with actions like extra food supplies to cover the flu season simply because you may not wish to go to the market if CDC predictions prove to be even 50% correct.

2. Dubai’s Gold trade is up 12%:

Dubai Gold Trade +12% In 1H 2009 At $14.69 Billion – DMCC

DUBAI (Zawya Dow Jones)–The Dubai Multi Commodities Centre, or DMCC, said Wednesday that the value of gold traded in the first half was $14.69 billion, a 12% jump from $13.07 billion a year earlier.

"No doubt the market witnessed some volatility in gold prices and was compounded by lower retail sales of gold jewelry, however, the overall investment appeal of gold remained strong throughout the first half of this year," said David Rutledge, chief executive officer at DMCC, in an emailed statement.

In the first six months of the year, a total of 300 tons of gold was imported into Dubai, up 13% from 265 tons in the same period of 2008. Gold exports from Dubai reached 213 tons, a 19% increase from 179 tons in 2008.

The gold price averaged $922 per ounce in the first half of the year, up from $910 per ounce during the same period in 2008, the DMCC said.

More…

Jim Sinclair’s Commentary

Here is another casualty of the OTC derivative manufactures and distributors who have reaped huge profits for their contribution to society.

Pension black hole at FTSE 100 companies hits record £96bn
The pension fund shortfall of Britain’s biggest companies has more than doubled to a record £96bn in a year, a report said on Wednesday.
Published: 5:54AM BST 05 Aug 2009

Actuaries Lane Clark & Peacock (LCP) said the financial crisis had helped send the combined deficit of FTSE 100 companies’ pension schemes soaring from £41bn a year ago. It was £12bn two years previously.

The current £96bn funding gap, calculated from data last month, is the largest recorded shortfall recorded under the international accounting rules currently used for Footsie pension funds, the firm added.

LCP said the plunging values would pile more pressure on companies to stop offering defined benefit pension schemes for employees.

Just three FTSE 100 companies – Cadbury, Diageo and Tesco – said they offered defined benefits to new employees, the report said.

The report also calculated the FTSE 100 share index would need to rise from its current level of 4,600 to more than 7,000 to wipe out the deficits.

LCP partner Bob Scott said the deficits had ballooned since March this year as historically low interest rates hit bond yields, which are a major source of pension scheme funding.

He said: "The collapse of Lehman Brothers in September 2008 had a significant impact on the UK pension schemes of FTSE 100 companies.

More…

 

Jim Sinclair’s Commentary

The Green Hornet sent us this. I would post his quote but the sensors would go wild.

Think about what is said here. It is outrageous even to conceive of.

About half of U.S. mortgages seen underwater by 2011
Wed Aug 5, 2009 5:12pm EDT
By Al Yoon

NEW YORK (Reuters) – The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday.

Home price declines will have their biggest impact on prime "conforming" loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac, the bank said in a report. Prime conforming loans make up two-thirds of mortgages, and are typically less risky because of stringent requirements.

"We project the next phase of the housing decline will have a far greater impact on prime borrowers," Deutsche analysts Karen Weaver and Ying Shen said in the report.

Of prime conforming loans, 41 percent will be "underwater" by the first quarter of 2011, up from 16 percent at the end of the first quarter 2009, it said. Forty-six percent of prime jumbo loans will be larger than their properties’ value, up from 29 percent, it said.

"The impact of this is significant given that these markets have the largest share of the total mortgage market outstanding," the analysts said. Prime jumbo loans make up 13 percent of the total market.

More…

Jim Sinclair’s Commentary

I think I told you that we were in this leg. $1224 is a better number.

Why Gold Could Hit $1,300 This Year
August 04,

Gold may be nearing its next major leg up.

No investment ever goes straight up or straight down. During the last bull market in gold, the precious metal rose 2,329% from a low of $35 in 1970 to a high of $850 in 1980. However, during that time, there was a period of 18 months in which gold fell nearly 50% (see the chart below).

clip_image001

As you can see, from mid-1971 to December 1974, gold rose 471%. It then fell 50%, from December ’74 to August ’76. After that, it began its next leg up, exploding 750% higher from August ’76 to January 1980.

Now, in its current bull market (2001 to March 2008), gold rose over 300% from $250 to a little over $1,000. And just like in the mid-70s, it began showing signs of weakness after its first big rally up to $1,014 in March ’08. At one point, it even fell to $700, a 30% retraction.

Granted, it wasn’t a full 50% retraction like the one that occurred from 1974-76. But we are experiencing a financial crisis. And gold is the most common catastrophe insurance.

If we were to go by the historic pattern of the gold market in the ‘70s, gold should experience upwards resistance for 19 months after its first peak today. Gold’s recent peak was $1,014 in March ’08 (roughly 17 months ago).

If this bull market parallels the last one, then gold should renew its upward momentum in a very serious way starting in October 2009. And this next leg up should be a major one (the biggest gains came during the second rally in gold’s bull market in the ‘70s).

More…

Jim Sinclair’s Commentary

IMF gold sales are NO FACTOR for the bear side in 2009-2011, just as they were NO FACTOR in the 70s for the bear side.

Central Bank net gold sales show huge drop in first half 2009
A report by GFMS for Societe Generale suggests the volume of Central Bank gold sales this year is likely to be among the lowest on record.
Author: Lawrence Williams
Posted:  Tuesday , 04 Aug 2009

LONDON – In a report released Monday, precious metals consultancy GFMS, for Societe Generale, looked at the recent rate and volume of gold sales from official sources and concluded that in the first half of the current year the net sales volume was a relatively minuscule 39 tonnes – down a massive 73% year on year.  Indeed in the second quarter, GFMS estimates that banks were net buyers of gold after being net sellers in the first quarter.

In effect, the majority of these sales came from within the Central Bank Gold Agreement, with its signatories selling some 92 tonnes, but this was offset by net purchases from Central Banks and institutions in other countries which turned out to be net buyers of around 56 tonnes.  There were also a few tonnes of sales from banks outside the CBGA.  GFMS notes that all these figures may be subject to alteration due to the lag that often exists between Central Bank activity in the gold market taking place and it being identified.

The biggest sellers of gold in the period included France which had announced some time back that it would sell 600 tonnes over the life of the five-year CBGA, which ends on September 26th.  France sold some 44 tonnes in the first five months of the year and it is likely, says GFMS, that it would also have sold a little more in June.  With a total of 576 tonnes of sales over nearly 5 years under the Agreement up until May that left only a further 24 tonnes to sell June to September.

The second biggest seller was the European Central Bank with 35.5 tonnes.

There are a few Central Banks which still have gold to sell under announced gold sales programmes, but these in total amount to very little, and GFMS reckons that in the second half of 2009 Central Bank sales will remain fairly low at around 100 tonnes which would mean that net official sector sales in 2009 overall, at some 140 tonnes, would be at the lowest level since 1994’s trough of 130 tonnes.

More…

Jim Sinclair’s Commentary

What in the world makes the writer think this is limited to Australia or even focused there?

China looking for choice pickings among Australian Junior miners
The loss of face over Chinalco’s tie up with Rio hasn’t curbed the country’s enthusiasm for Australians.
Author: Joseph Chaney and James Regan
Posted:  Wednesday , 05 Aug 2009

KALGOORLIE, Australia, (Reuters) – Who ever said China’s loss of face over Chinalco’s collapsed $19.5 billion Rio Tinto (RIO.AX) tie-up bid would curb the country’s hunger for Australian natural resources?

Chinese state-owned and privately-held metals firms are actively on the prowl for acquisition and financing deals with Australia’s small and medium-capped miners of base metals and iron ore, analysts and bankers say.

"I reckon there’s still a few in the cards, there’s still more to do — particularly in steel-related products," said James Wilson, an analyst at DJ Carmichael.

"You can’t shut the door on these guys because they are related to the long-term health of the mining industry here," Wilson said, adding that Chinese companies account for a huge proportion of Australian mining firm’s customers.

"It’s a symbiotic relationship these days."

China’s hunger for Australian assets is far from satisfied, two regional investment banking sources told Reuters, even though most of the distressed deals have already been completed earlier this year in the immediate wake of the global financial crisis.

More…

Jim Sinclair`s Commentary

Get ready for Pa. IOUs.

Pennsylvania gets stop-gap budget, Philly left out
Wed Aug 5, 2009 1:39pm EDT
By Jon Hurdle

HARRISBURG, Pennsylvania (Reuters) — Pennsylvania Governor Ed Rendell on Wednesday signed an $11 billion "stop-gap" budget for fiscal 2010 that lets state employees and vendors get paid, but requires lawmakers to resume negotiations on education and other major state spending.

Senate Majority Leader Dominic Pileggi, a Republican, reiterated that budget negotiations should take precedence over a bill that would allow Philadelphia to deal with its own financial crisis by raising the city’s sales tax and deferring pension payments.

"The budget needs to come first," Pileggi said.

Philadelphia Mayor Michael Nutter, who was in Harrisburg again on Wednesday seeking support for the measures, warned he will have to lay off around 3,000 workers and close some city agencies — unless the measures are approved by August 15.

Rendell, the Democratic governor, vetoed $12.9 billion worth of spending line items in a budget bill that was first approved by the Republican-controlled Senate in early May. He urged legislators to return to the bargaining table more than a month after missing the July 1 budget deadline.

"We have work to do and we must get back to doing it post-haste," Rendell said at a news conference.

More…

Jim Sinclair`s Commentary

Briefs (referring to brain power).

OTC derivatives buried GMAC.

GMAC turns to Fed for money. Battered lender GMAC reported that its Q2 loss widened to $3.9B, with revenues falling 22% to $1.03B and loan loss provisions rising 50% from the year before to $1.16B. GMAC also confirmed it’s in discussions with the Federal Reserve over $5.6B in new capital it needs to raise by November to satisfy the government’s stress test requirements. Since the government has already invested $12.5B in GMAC, the lender is unlikely to find external investors willing to help with capital raising.

Jim Sinclair`s Commentary

And here are the new GM bosses.

Cash for Clunkers May Cost Up to $45,354 Per Vehicle

The "Cash for Clunkers" program has been a "great success", at least according to the government, and the auto industry. Within days of its kickoff, all $1 billion allocated to the program has been used up by Americans who have eagerly lined up to trade their clunkers for new vehicles.

Some refreshingly honest reporting has come from Edmunds.com, a car buying site that is telling the truth, in spite of benefiting from an increase in business and site traffic, due to the program. According to Edmunds, about 200,000 old low mileage cars would normally be traded in, every 3 months, in exchange for more efficient higher mileage cars, without this program.

The highest rebate is $4,500, and the lowest is $3,500. If everyone qualified for $4,500 per vehicle, about 222,000 vehicles would have just taken advantage of the government’s money. At $3,500, 286,000 vehicles will have been sold.

More…

Jim Sinclair`s Commentary

Russia today. Each news item is involved with the other regardless of claims to the contrary.

US ‘continues’ to supply Georgia with arms
Wed, 05 Aug 2009 11:32:24 GMT
Amid escalating tension between Moscow and Tbilisi, a top Russian official says the United States continues to supply Georgia with weapons.

Two Russian subs seen patrolling off US coast
Wed, 05 Aug 2009 04:48:38 GMT
Two Russian nuclear attack submarines have been patrolling off the eastern coast of the United States in a rare move that has alarmed the Pentagon.

US, Russian presidents discuss South Ossetia
Wed, 05 Aug 2009 01:18:53 GMT
Rising tensions between Russia and Georgia have prompted the Russian president to hold talks with his US counterpart over the worsening situation.

As Russia puts troops on alert, Georgia warns of war
Tue, 04 Aug 2009 15:27:40 GMT
Russia says troops in independence-seeking South Ossetia are on increased combat readiness on the de facto border with Georgia, amid rising tension between the sides of last year’s war.

Jim Sinclair`s Commentary

94 days to go.

When China prepares its « Great Escape » from the dollar-trap for the end of summer 2009

LEAP/E2020 believes that the next stage of the crisis will result from a Chinese dream. Indeed, what on earth can China be dreaming of, caught – if we listen to Washington – in the “dollar trap” of its USD 1,400-billion worth of USD-denominated assets? If we believe US leaders and their scores of media experts, China is only dreaming of remaining a prisoner, and even intensifying the severity of its prison conditions by always buying more US Treasuries and Dollars.

In fact, everyone knows what prisoners dream of. They dream of escaping of course, of getting away from prison. Therefore, LEAP/E2020 has no doubt that Beijing is constantly striving to find the means of disposing, as quickly as possible, of the mountain of « toxic » assets which US T-Bonds and Dollars have become, keeping the wealth of 1,300 billion Chinese citizens prisoner.

In any good escape story, the prisoners do not spend their time making announcements that they are preparing to get away. In fact, on the contrary, they tend to avoid arousing their guards’ vigilance. According to our team, the Chinese declaration of March 24th asking for the replacement of the US dollar by an international reserve currency was both a “testing of the waters” and a warning: a direct poll to make an assessment of the forces at work (within the G20 in particular) when it comes to moving to a post-Dollar era (1), and a constructive and destructive (depending of the reaction to the previous idea) warning sent to the various global players. A responsible player (and Beijing is one) must send discreet signals to the other players likely to follow or help “planning the job”. The preparation (2) and implementation of a « Great Escape » (3) requires the collaboration of several partners and no one who would have been willing to co-operate must end up in trouble because he was not informed (4).

More…

Jim Sinclair`s Commentary

The USDX is going to .7285, will have a small rally and then move on to .6200.

No end in sight for bank bailouts
Even as the industry recovers, winding down last year’s rescue programs and new ones put in place by the Obama administration may be easier said than done.
By David Ellis, CNNMoney.com staff writer
Last Updated: August 5, 2009: 4:24 AM ET

NEW YORK (CNNMoney.com) — After rescuing the nation’s banking system from utter disaster last fall, Washington now faces an arguably much trickier task: putting the bailout genie back in the bottle.

Several initiatives are on course to expire later this year, putting regulators and the White House in the difficult position of having to decide whether the nation’s banking industry is strong enough to go it alone.

"They would love to get out of the middle of all this stuff if they could," said John Douglas, a former general counsel at the Federal Deposit Insurance Corp, who now heads the banking regulatory practice at law firm Davis Polk & Wardwell. "The question really is whether the financial system and capital system is vibrant enough to exit without a government backstop."

So far, most of the signs from the banking industry lately have been somewhat encouraging.

The credit markets seem to be returning to normal. The London Interbank Offered Rate — or Libor — a widely relied upon measure of bank-to-bank lending rates, is now well below the record high it hit after Lehman Brothers filed for bankruptcy last fall.

More…

Jim Sinclair`s Commentary

The Green Hornet says this is definitely a major bull market!

Consumer Bankruptcy Filings Most Since October 2005 (Update1)
By Andrew M. Harris

Aug. 4 (Bloomberg) — Consumer bankruptcy filings in the U.S. rose to the highest level since October 2005, the American Bankruptcy Institute said in a statement.

More than 126,000 new cases were filed by consumers last month, the nonpartisan research group said today, citing figures furnished to it by the National Bankruptcy Research Center. That was an 8.7 percent rise from June and a 34 percent increase from July 2008.

“Today’s bankruptcy filing number reflects the sustained and growing financial stress on U.S. households,” ABI Executive Director Samuel Gerdano said in the statement. The group, composed of lawyers, accountants, bankers and judges, is based in Alexandria, Virginia.

Congress, in October 2005, enacted the Bankruptcy Abuse Prevention and Consumer Protection Act, a legislative reform package intended to make it harder for consumers to get court orders wiping out their uncollateralized debt.

The act required debt counseling and a means test for would-be filers.

More than a quarter of the filings last month were by consumers seeking to reduce their debt under the U.S. Bankruptcy Code’s Chapter 13 provisions. Filers also have the option to seek liquidation of debt under Chapter 7.

More…

Jim Sinclair`s Commentary

Monty, is Connecticut looking good?

Judges Order California to Reduce State Prisoner Population
By Joel Zand on August 4, 2009 4:58 PM

A panel of three federal judges ordered the State of California to reduce its inmate population because of prison overcrowding, resulting in the release of approximately 43,000 prisoners during the next two years so that the state’s prisons can operate at 137.5% of their design capacity.

In a 184-page opinion, the panel ordered California to provide an inmate reduction plan within 45 days to carry out the court’s directive "in no more than two years."

More…

Posted at 7:27 PM (CST) by & filed under Jim's Mailbox.

Dear Mr. Sinclair,

I thought this piece included some interesting tidbits.

"The only income that is really going up is the income from Uncle Sam, which is up more than 10.0% and we have reached a point where a record of nearly one-fifth of personal income is being accounted for by paychecks out of Washington."

This speaks load to more massive monetary stimulus in order to keep the ship afloat.  That in and of itself spells disaster for the currency falling right into your theme that hyperinflation is a currency event and has little if anything to do with actual demand.  In the event demand is strong from China and other emerging markets that will only add to the difficulties in attempting to procure essentials at a fair price. 

Many of the businesses in our industry (industrial hardware) are slashing inventories.  We are doing exactly the opposite and are maintaining inventory levels above what we normally would in order to have goods when others may not.

Best Regards,
CIGA Marc

U.S. GDP Review — Consumer, Where Art Thou?
by David A. Rosenberg

While the headline real GDP number came in a tad better than expected, at -1.0% QoQ annualized rate, the back data were revised lower and show the recession to be deeper. First quarter of this year, for example, was revised to -6.4% from -5.5% previously. And, it may not be lost on anyone that the four consecutive quarters of economic contraction was unprecedented in the post-WWII era; ditto for the -3.9% year-on-year trend. In other words, while nobody is willing to go out on the limb and call this a depression (the same academics that brought you "The Great Moderation" during that last great albeit leveraged economic expansion are now labeling what we have endured over the past year-and-a-half as "The Great Recession"). This does go down as the worst economic performance both in terms of duration and intensity since "The Great Depression". While we are past the most pronounced part of the downturn, it may still be premature to call for the end of the recession merely because of the prospect of a positive third-quarter GDP result. After all, we saw GDP advance at a 1.5% annual rate in last year’s second quarter, and if memory serves us correctly, the NBER did not subsequently declare the end of the recession. And even if the recession is ending, as we saw in 2002, that does not guarantee a durable rally in risk assets. Sustainability is the key, and it remains the wild card.

The details in today’s report left something to be desired. Consumer spending came in at -1.2% annualized, twice the decline expected by the consensus. This occurred in the face of gargantuan fiscal stimulus and leaves wondering how this critical 70% chunk of the economy is going to perform as the cash-flow boost from Uncle Sam’s generosity recedes in the second half of the year. Imagine, government transfers to the household sector exploded at a 33% annual rate, while tax payments imploded at a 33% annual rate and the best we can do is a -1.2% annualized decline in consumer spending in real terms and flat in nominal terms? What do we do for an encore? In the absence of the fiscal largesse, it is quite conceivable that consumer spending would have shrunk at a 10% annual rate last quarter! Nonresidential construction action sagged at an 8.9% annual rate and this was on top of a 44.0% detonation in the first quarter. Ditto for equipment & software ‘capex’ spending, also down at a 9.0% annual rate and this too followed a 36.0% collapse in the first quarter. Residential construction slumped sharply yet again, this time at a 29.0% annual rate. These are the guts of private sector spending and collectively, they contracted at a 3.3% annual rate — the sixth decline in a row. So while there are many calls out there for the recession’s end, it remains a forecast as opposed to a present-day reality.

As expected, inventories were sliced sharply — by $141 billion at an annual rate, which alone subtracted 0.8 percentage point from headline GDP growth. But with consumer outlays slipping 1.2% and no signs of a 3Q recovery in sight, based on early back-to-school results looking rather tepid thus far and spending intentions in the confidence surveys rolling over, we wonder aloud just how much re-stocking we are going to see this quarter and even if we do, whether it will be a one-quarter wonder and set the stage for a fourth-quarter relapse. (Hopefully it has not been lost on anybody that the Chicago PMI inventory index in July hit its lowest level since June 1949. So maybe there is less to this inventory story than meets the eye.) Something tells us that an equity market trading north of a 760x multiple on reported earnings is not prepared for such a prospect.

More…

 

Dear Friends,

Here is a great lesson from CIGA Eric.

Please give this post serious consideration.

Respectfully yours,
Jim

Establish the Secular Trends, Trade in Sympathy.
8/03/09 by CIGA Eric

Establish the secular trends (fundamentals) and use TA to trade in sympathy with them. Once they are established and understood, spin and MOPE will be reduced to inane chatter.

The coming employment report will be statistically massaged and spun hard to alter the perceptions of the secular trends in place. What are those trends? You know them. You can feel them. Spin only serves to deny their existence.

Today I have posted three labor and employment charts that will illustrate a few of the secular trends firmly in place.

CIGA Eric

Click charts to enlarge

ACCALOAWIC

Dear Jim,

A broke FDIC this early in the game means endless rescues from the Treasury. This will be repeated with the Pension Benefit Guaranty Association ("PBGA"), the Securities Investors Protection Association ("SIPC") and every other institution that has been put in place to avoid widespread panic. People shouldn’t worry about getting their money back. They should be worried about all their money being not enough to buy a loaf of bread.

None of this should come as a surprise to CIGAs that have been paying attention.

Best regards,
CIGA Richard B.

From goingconcern.com, August 04, 2009:

SEC Memo says Guaranty Bank to be Seized, not Sold
By Teri Buhl

Editor’s Note: Teri Buhl is a Wall Street investigative reporter who has written for the New York Post, Trader Monthly and HousingWire.com. Her big scoops include breaking news on all things wrong at IndyMac, calling out Bob Steel for lying to investors about losses on CNBC, and shining a light on Wells Fargo for manipulating earnings with paper accounting gains. She resides in lower Fairfield County, CT and actually earned an accounting degree from U.S.C.

In another case of the Feds proping up zombie banks, sources have reported that an SEC memo has stated that the FDIC will seize Guaranty Bank (GFG: 0.123, -5.38%) and it will not be sold as previously rumored.

This continues the trend of bank seizures occurring with virtually no warning. According to one prominent hedge fund manager:

“The problem is that the regulators know that if they call these things anything worse than “well capitalized”…it is a kiss of death. In many ways it is the same issue as rating agencies (curse of the AAA) that know that if they downgrade certain types of companies, they are putting them out of business. As a result, many banks are “well capitalized” until the day they are seized. It is absurd.”

More, after the jump

Austin, Texas based Guaranty Bank just updated its bank reports to show a $1.8 billion loss for the 1st quarter, of which $1.6 bil was due to “Other-Than-Temporary Impairment Charges on Debt and Equity Securities”. Um, not good.

The seizure by the FDIC will hit the regulator’s budget to the tune of at least $5.3 bil according to sources within the OTS. This, on top of what’s going on with Colonial bank failing, should wipe out what’s left of the FDIC’s budget. As a result, they are going to have to borrow from Treasury and then add that cost to our nations banks, which we all know just gets passed on to the taxpayer in the form of higher banking fees.

More…

Dear Mr. Sinclair,

Just received this, only the headline at this point.

"( DJ ) 08/05 03:04PM *DJ SEC Charges Options Traders In First Naked Short Selling Case"

Best Regards,
CIGA Marc

Posted at 2:54 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Once again, as we have seen in the recent market action of the past few trading sessions, gold found strong buying emerge on a price retracement or dip lower. The buyer(s) that have been making their presence felt are apparently still active and challenging the bullion banks.

One of the things I have noticed is that the open interest levels are rising indicating that this buying is not short covering but rather new longs being established. Even at that, the overall open interest total is still not at the 400,000 level. You might recall that the peak reached in this category was nearly 594,000 back in January 2008. Front month gold topped out at $936 that month followed by a run above the $1,000 level in March that same year when it reached $1,033.39 before dropping all the way down below $700. The present state of the market therefore is quite remarkable given the current price level near $970 and open interest some 200,000 contracts shy of the record.

One of the reason for the peak in open interest back early last year was the spreader category grew quite large. Currently they are rather small by comparison. Still, even after allowing for the spreaders, open interest readings are at levels that can support a much stronger move higher in gold should momentum funds attract even more followers to their cause.

Technically, resistance lies first at yesterday’s high near $973. A pit session close above this level targets $980 which is the last substantial barrier before a run into the $990’s and possibly $1,000.

Initial support is near today’s session low followed by a bit better support centered around $955 – $953. Below that is $942 – $940.

I am in awe of what copper is doing and still do not quite know what to make of that market except it is obviously running higher on the “improving global economy” theme. It simply will not break lower and there are still a large number of funds trapped on the short side in this market that have the capability to propel it even higher if the squeeze continues.

Crude oil is mirroring the action in the Dollar inversely. Rising crude oil along with natural gas pretty much is the death knell to the deflationists. The only thing saving their bacon right now is that the bonds have not yet broken down of their larger trading range. We will have to see what happens to them if they should fall back down to the 115 level.

The Dollar still looks like it is headed down to near 76.

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

August0509Gold1230pmCDT

Posted at 5:32 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

I have been asked what this means.

The inviting conclusion is that Ron Paul is finally being recognized because of his foresight and willingness to express his vision. That is partially true, but there is a strong chance that Ron Paul’s opinion is being used as a tool of the MOPErs to establish the subject in the general media.

The many other articles on the same subject as Ron Paul, such as below, would not appear.

The only conclusion you can come to is the king makers of the present administration are at odds with the king makers who are responsible for the process that brought Bernanke into the Federal Reserve Chairmanship.

End the Fed? A not-so-crazy idea.
Congressman Ron Paul’s bill may never pass, but history suggests the US economy would be better off without the Federal Reserve.
By George Selgin
from the August 3, 2009 edition

ATHENS, GA. – Since it was introduced in February, Representative Ron Paul’s "Audit the Fed" bill (H.R. 1207) has gained 282 congressional cosponsors. If adopted, the bill would allow the Government Accountability Office to review, not only the Federal Reserve’s balance sheet, but its recent monetary policy deliberations and transactions.

Fed Chairman Ben Bernanke opposes the plan, saying it would undermine the Fed’s hallowed independence.

But Mr. Paul, a noted libertarian who ran for president last year, also wants to keep the Fed out of Congress’s clutches – by scrapping it altogether. That’s the goal of his follow-up Federal Reserve Board Abolition Act (H.R. 833). Although that measure has yet to gain a single cosponsor, it has plenty of grass-roots support, and Paul hopes that members of Congress will jump on the bandwagon once their eyes are opened by a no-holds-barred audit.

Wacky stuff? Well, if not having a ghost of a chance is enough to make a bill bonkers, Paul’s measure probably qualifies. But that doesn’t mean you’ve got to be crazy to believe that the US economy would be better off without the Fed.

The Fed’s apologists suggest otherwise, of course. They note that the US spent nearly half the years between 1854 to 1913 in recession, as opposed to just 21 percent of the time since the Fed’s establishment in 1913. Who would want to go back to those bad old days?

But consider: the US economy has actually grown less rapidly since 1914 than it did before. And inflation has been much worse, despite both the Civil War, which featured the nation’s worst inflation, and the Great Depression, which featured its severest deflation!

What’s more, the frequent downturns before 1914 were due, not to the lack of a central bank, but to foolish government regulations. Topping the list were bans on branch banking, initiated by state governments and then incorporated into federal banking law. The bans propped up thousands of undercapitalized and under-diversified banks – banks unfit to survive major local shocks, let alone macroeconomics ones. They also caused bank notes – competitively supplied counterparts of today’s Federal Reserve notes – to trade at discounts whenever they traveled far from the solitary offices of banks that issued them.

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Jim Sinclair’s Commentary

This is true.

.7285 is the magnet now pulling on the USDX. That is just one of the lower limits the USDX will visit.

The Greenback Is Broken
By MICHAEL KAHN

The U.S. dollar index is at 11-month lows and shows no signs of turning around.

THE U.S. DOLLAR INDEX, which tracks the dollar against other major currencies, fell below its important June low of 78.33 late last week. On Monday morning, it was trading at an 11-month low.

The bear trend from March continues with no meaningful support in sight.

Roughly two years ago, when the dollar was in its previous bear market run, the dollar index had moved under a multidecade support level at 80 (see Chart 1). At the time, the subprime-mortgage crisis was just unfolding.

Chart 1

clip_image001

After reaching a low near 71, the dollar spent several months moving sideways until July 2008. Although still several weeks before the stock market started its slow motion crash in September, fear had gripped the world’s financial markets. Stocks and corporate bonds were spiraling lower.

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Jim Sinclair’s Commentary

Just as "Cash for Clunkers" is an organizational disaster, so is every other government program, even if well meant.

Now think about nationalization of the auto and other industries and the mess that will certainly become. Upcoming is the pension industry, the securities insurance entity and eventually the majority of mortgage backed SIVs still floating around the planet.

Mortgage aid program helping fraction of borrowers
By ALAN ZIBEL (AP)

WASHINGTON — The government’s $50 billion program to ease the foreclosure crisis is helping only a tiny fraction of struggling homeowners.

As of July, only 9 percent of eligible borrowers had seen their mortgage payments reduced. And a progress report on the plan Tuesday showed that 10 lenders had not changed a single loan.

Both Bank of America Corp. and Wells Fargo & Co. — which have received billions in federal bailout money — were below average. BofA, which did not immediately comment, modified 4 percent of eligible loans, and Wells Fargo 6 percent. And Wachovia Corp., which was taken over by Wells Fargo last December, modified just 2 percent.

"We know we’ve fallen short of our customer service goals in some cases," Mike Heid, co-president of Wells Fargo’s mortgage unit, said in a statement. The company aims to sign up most borrowers for the Obama plan with one phone call and plans to send customers a trial offer within two days.

Foreclosures, meanwhile, continue to rise. About 1.5 million households received at least one foreclosure-related notice in the first half of this year, according to RealtyTrac Inc.

More…

Jim Sinclair’s Commentary

Most SIV based mortgages aren’t worth the paper they are written on.

About four years back the New York Federal Reserve Bank called a special meeting where the gruesome 8 major derivative granting banks were called in ostensibly to correct back office problems and procedures. In English that meant that the explosion in securities investment vehicles, especially at that time mortgage based had gone totally FUBAR. Now locating who is the proper lender with the proper paperwork is nearly impossible. If anyone being foreclosed on would fight back they would win. Show me the loan document is what you demand. Now consider the problems that mortgage backed SIVs have, making most of them worthless for more reasons than just their convoluted OTC derivative nature.

NEW JERSEY COURT DISMISSES FORECLOSURE FILED BY DEUTSCHE BANK FOR FAILURE TO PROVIDE DISCOVERY AS TO OWNER AND HOLDER OF NOTE, SECURUTIZED TRUST DOCUMENTS, AND OTHER DOCUMENTS DEMANDED BY BORROWERS
JULY 14, 2009

In a stunning victory for borrowers, a New Jersey court has dismissed a foreclosure action filed against the borrowers by Deutsche Bank Trust Company America as alleged trustee for a securitized mortgage loan trust after Deutsche Bank willfully, and despite the entry of three (3) separate court orders, refused to produce documents demanded by the borrowers which included documents setting forth the identity of the true owner and holder of the Note and mortgage, the complete chain of title to ownership of the note and mortgage, payment application histories, and documents as to the securitized mortgage loan trust. The Court had given Deutsche Bank multiple opportunities and extensions of time to produce the documents, but Deutsche Bank continually refused to produce any of the documents requested, resulting in the dismissal of Deutsche Bank’s foreclosure action. The Court also ruled that Deutsche Bank is not permitted to re-file any foreclosure action until it is prepared to produce ALL of the subject discovery.

FDN attorney Jeff Barnes, Esq. represented the borrowers, assisted by local New Jersey counsel.

W. J. Barnes, P.A. has numerous other cases pending where similar discovery requests have been sent to Deutsche Bank, none of which have been complied with to date. As such, additional requests for sanctions, including dismissal, are expected to be filed in these cases.

Deutsche Bank was also the subject of a recent ruling in a case in New York where the Court denied Deutsche Bank’s Motion for Summary Judgment, finding that a purported assignment from MERS to Deutsche Bank was defective and that Deutsche Bank, with an invalid assignment of the mortgage and note from MERS, lacked standing to foreclose. Significant in the ruling was the court’s observation and question as to why, 142 days after the borrower was claimed to be in default, that MERS would assign a “toxic” loan to Deutsche Bank. The court also required a satisfactory explanation, by sworn Affidavit, from an officer of the securitized trust as to why, in the middle of “our national subprime mortgage financial crisis”, Deutsche Bank would purchase from MERS, as alleged “nominee”, a nonperforming loan. The court further inquired as to whether Deutsche Bank violated a corporate fiduciary duty to the note holders of the securitized mortgage loan trust with the purchase of a loan that had defaulted 142 days prior to its assignment from MERS to the trust.

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Jim Sinclair’s Commentary

I have given you 18 reasons why.

Read Trader Dan below.

Gold gearing up (again) to break $1,000?
Commentary: After Friday’s rebound, gold bugs are watching for a breakthrough
By Peter Brimelow, MarketWatch

NEW YORK (MarketWatch) — For the umpteenth time, gold bugs think gold may be poised to break $1,000.

The last week of July definitely lacked summer somnolence in the gold market.

A brutal $14.40 sell-off on Tuesday caused chartists great distress. But gold held. And then on Friday it staged an even more powerful recovery, rising some $20, closing at $954.50 and repairing the week’s technical damage.

Dan Norcini at JSMineset commented: "I must say that today’s sharp climb higher is very impressive from a technical perspective, as it pushed gold back above all of the major moving averages on the WEEKLY chart. It is evident from the ferocity of today’s climb that a good many guys got caught flatfooted on the short side and were violently squeezed out." (See Web site.)

Friday turned the Australian service The Privateer’s celebrated $US 5×3 point and figure chart up. (Chart available free here.)

As with other types of gold chart, it now raises the enticing possibility of an immense inverse head-and-shoulders pattern — bullish implication: maybe $1,300.

MarketVane’s Bullish Consensus for gold stood at 80% on Friday night: high, but it had phases in the mid eighties twice this year, and often spends time in the mid nineties in a strong gold run.

The Hulbert Gold Newsletter Sentiment Index is at 16.8%, about the mid-point of its range.

Two elements are encouraging the bugs to wonder if this could be the start of the Big One — the push above $1,000.

More…

Posted at 3:47 PM (CST) by & filed under Jim's Mailbox.

Dear Friends,

What happens if central banks and investors stop buying any or all maturity offerings?

112-113 on the US 30 Years are the line of no return.

Read Eric’s take below.

Regards,
Jim

Guys,

Here is an unbelievably dangerous chart. T-Bond. The Total Return Index is right on the trend line. Since the test comes as the C-wave advance in gold heats up, I expect it to break. I have been waiting to short the bond market for years. I am quietly nibbling.

The sheer size of the short position accumulating in the 2-year could be coincidental or it could be the warning sign.

CIGA Eric

Click either chart to enlarge both in PDF format

LTGBTRICOT Table

 

Dear Jim,

Articles like the following provide ongoing proof that the Formula you gave us on September 1, 2006, is and always has been 100% correct. There is a lesson here that I believe newer readers of this site need to understand.

Point 6 of your 12-point Formula stated, "Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities and States as it is for the Federal government."

A linchpin of the Formula was found in Point 2, which stated, in relevant part, "An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101."

For the next two years every Treasury and Fed spokesperson and 90% of mainstream commentators gave us all the reasons that this fundamental economic law would not apply in this instance. It was going to be different this time.

To keep this analysis simple I will not speculate on their various motivations for arguing a new reality would apply. The point is they did, uniformly, and anyone listening to them was left unprepared for the coming reality.

You are now telling us that based on fundamental economic law as proven time and again throughout history, the government’s artificial expansion of the money supply is going to result in a monetary-based inflation. This will happen, as it has throughout history, against a background of poor business conditions.

At the same time, every Fed and Treasury spokesperson and 90% of the mainstream commentators are telling us it will be different this time.

If we were talking baseball few would have trouble deciding who to believe. JSMineset contributors would be batting .850 (let’s be modest, here); the Fed and Treasury would be batting .000, and commentators as a whole would be betting .100. There would be little doubt of the outcome.

As far as I’m concerned the analysis is that simple.

Best regards,
CIGA Richard B.

AP ENTERPRISE: Federal tax revenues plummeting
By STEPHEN OHLEMACHER
Associated Press Writer

The recession is starving the government of tax revenue, just as the president and Congress are piling a major expansion of health care and other programs on the nation’s plate and struggling to find money to pay the tab.

The numbers could hardly be more stark: Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.

Other figures in an Associated Press analysis underscore the recession’s impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.

The last time the government’s revenues were this bleak, the year was 1932 in the midst of the Depression.

"Our tax system is already inadequate to support the promises our government has made," said Eugene Steuerle, a former Treasury Department official in the Reagan administration who is now vice president of the Peter G. Peterson Foundation.

More…

Posted at 3:36 PM (CST) by & filed under General Editorial, Guild Investment.

Dear Friends,

Where available, I believe you should give significant consideration to taking delivery of your investment shares.

Where not available, you might consider an alternative investment that does deliver shares. I can assure you from personal knowledge few people, even here, have exercised that right.

People simply will not make the small effort to protect themselves.

Where you own physical gold, please take delivery. This is in your best interest.

Regards,
Jim

Dear CIGAs,

You may remember that about a year and a half ago we began a campaign to inform our clients and readers of certain risks to their financial assets that exceed SIPC (Securities Investor Protection Corp.) insurance limits of $500,000 (up to $100,000 in cash is insured and up to $400,000 in securities is insured).

Many brokerage firms previously purchased insurance from major insurance companies to provide insurance for client accounts that exceed the SIPC limits.  However, earlier this decade, the major insurers stopped offering excess SIPC insurance to brokerage firms.  Apparently, the major insurers were prescient on the risks of brokerage firm solvency.

As a result of the loss of excess insurance for larger accounts, in 2003 many brokers banded together to form  a private insurance company called CAPCO (Customer Asset Protection Company) to insure their clients accounts above $500,000 .  In theory, the industry would self insure against the failure of one of its members.

Lehman was a member of the CAPCO consortium.  When Lehman went bankrupt in September 2008, many large investors lost money and assets that were deposited at Lehman.  CAPCO was supposed to insure the losses in excess of $500,000.  Not surprisingly, it appears that CAPCO was under funded and may not have the money to pay the creditors.

This following article explains why we have suggested that our clients and readers consider having their assets that exceed the SIPC and FDIC insurance limits held in custody accounts, preferably in the private banking division of a major bank.  We have looked for custodians whose legal documentation includes provisions describing the segregation of assets and audits to ensure that client assets are segregated from the assets of the institution itself and from the assets of every other client of the institution.

Please read the article below from the New York Times for a great deal more information.

Billions in Lehman Claims Could Bury an Elusive Insurer
By ZACHERY KOUWE, July 30, 2009

Next to a Chinese restaurant in Burlington, Vt., lurks a quiet guardian of Wall Street — an obscure insurance company that is supposed to protect big-money investors in the event of a catastrophic failure of a major brokerage firm.

A failure, for instance, like the one that brought down Lehman Brothers nearly 11 months ago. Now, after years in the shadows, the insurer, the Customer Asset Protection Company, could finally be put to the test, and questions are starting to swirl.

The worry is that the company, which has never paid out a claim, might be unable to cope with the Lehman bankruptcy.

If it were overwhelmed by claims, the banks and brokerage companies that own Capco, as it is known, could end up owing billions of dollars.

Capco representatives dismiss such concerns, but state insurance regulators are keeping an eye on the company. Officials at the New York State Insurance Department are concerned about the company’s ability to withstand the Lehman bankruptcy, the largest in history.

By some industry estimates reviewed by the insurance department, Capco could face nearly $11 billion in claims but has only about $150 million with which to meet them. The state is examining whether the company sold policies without the means to cover them, according to a person with direct knowledge of the inquiry who had signed confidentiality agreements.

The issue has even reached Washington, where a member of the Senate Finance Committee, Robert Menendez, has sounded an alarm. Mr. Menendez, Democrat of New Jersey, wrote the Treasury secretary, Timothy F. Geithner, in June to express his concern.

“It has become clear that this entity is thinly capitalized,” Mr. Menendez wrote in the letter. Capco, he said, potentially posed “systemic risk.” Capco was created in 2003 by Lehman and 13 other banks and brokerage companies as a kind of marketing tool. The pitch was that while Capco would not insure customers against investment losses, it would compensate them if the firms failed. Capco promises to provide virtually unlimited coverage above the $500,000 offered by the Securities Investors Protection Corporation and its equivalent in Britain.

Capco is virtually unknown even in financial circles, but it is being thrust into the spotlight by the events at Lehman. Creditors and former customers are battling over who will get what and when from the fallen bank, including more than $32 billion of assets that have been tied up in Lehman’s London prime brokerage unit. Untangling the mess could take years. Some former Lehman clients, which include big hedge funds, are looking to Capco for answers — and money.

Dewey & LeBoeuf, the law firm that represents Capco, said in a statement that Capco had no current policies outstanding and was “preserving all assets to address claims that might arise out of the insolvency of Lehman Brothers Inc. and Lehman Brothers International (Europe).”

The law firm called worries about Capco’s potential exposure to Lehman “speculation.”

Capco, which is private, is something of a financial mystery. Its members include Wall Street giants like Morgan Stanley and Goldman Sachs, banks like JPMorgan Chase and Wells Fargo, smaller brokerage firms like Robert W. Baird & Company and Edward Jones, and Fidelity, the mutual fund giant. Capco was initially registered in New York but later moved to Vermont, where state law enables it to operate without disclosing much about its finances.

Capco’s owners referred questions about the company’s liability to Dewey & LeBoeuf. Since it stopped writing policies on Feb. 16, most of Capco’s owners have purchased account protection for their clients through private insurance companies like Lloyd’s of London. Pershing, a unit of Bank of New York Mellon, told clients in a December notice that their Capco insurance would expire and that the firm had a new policy with Lloyd’s to “provide our customers and their investors with extra comfort that their assets are safe.”

It’s unclear who actually serves as the current president of Capco, and the company’s main phone number connects to a recording that tells callers they’ve reached a “nonworking number at Morgan Stanley.” A unit of Marsh & McLennan, the giant insurance services company, is listed as Capco’s administrator, but no contact information is listed on Capco’s Web site. The unit is based in the same Burlington building as Capco.

Brokerage companies used to buy account protection insurance from large insurance companies like Travelers and the American International Group. But in 2003, those insurance companies stopped offering such policies, saying it was impossible to calculate their liability. Enter Capco.

The Capco members played up their coverage when pitching their brokerage services to clients, especially large hedge fund customers who could lose billions of dollars if a firm went under. Although Capco’s finances were never disclosed publicly, the company was initially a given high rating by Standard & Poor’s.

That rating, however, was cut to junk status last December, and the ratings were withdrawn altogether in February. In its report, S.& P. said it was concerned about potential claims from customers of Lehman’s London unit, which “could create a liability for Capco that exceeds the insurer’s resources.” Charles Schwab, UBS and Merrill Lynch never opted for Capco, arguing that the arrangement seemed risky. Schwab requested the company’s financial statements from the insurance department through a Freedom of Information Act request in 2004, but was told the books were confidential.

The New York State Insurance Department later told Capco’s members that the company would eventually have to release the information. Before that happened, however, Capco relocated to Vermont, a haven for so-called captive insurance companies, whose owners are the ones buying the policies.

“Right away, the whole Capco thing just did not pass the smell test,” said Robert Meave, an outside consultant for Schwab at the time, who evaluated the insurance company.  “Schwab was not about to go to their clients and tell them we’re providing account protection and, oh by the way, they were owners of the insurance company.”

Firms who sought coverage elsewhere, mainly through Lloyd’s of London, could buy only up to $150 million of insurance per account and a maximum of $600 million for the entire firm. As a result, some customers moved their money to firms that offered Capco coverage.

“Let’s face it, none of us could have foreseen an event like Lehman, but we didn’t feel the capitalization of Capco as it seemed to be forming was going to be adequate in the extremely unlikely event that something happened,” Mr. Meave said.

Owners of the assets tied up in Lehman’s London unit, including pension funds and university endowments, believe they may have claims against Capco if all of their money is not returned by Lehman’s liquidator.

If Capco can’t pay out the claims and files for bankruptcy, several customers said they would bring lawsuits against the other brokerage houses.

“The bottom line is, this insurance should have never been sold to clients, and it just shows how Wall Street again miscalculated the risks involved with one of their own going under,” said an adviser working on the Lehman bankruptcy who was not authorized to speak for the company.

If you have accounts above $500,000 at brokerage firms and are interested in how we would protect those assets please do not hesitate to contact Aubrey Ford from our office at 310-826-8600.

Thank you for listening.

Monty Guild and Tony Danaher
www.GuildInvestment.com

 

Jim Sinclair’s Commentary

Here is an interesting review of the DTCC system that asks a most interesting question.

However if you believe in MOPE, why worry?

Who Really Owns Your Stocks? Hint: It’s Not You

So, do you think you own the stocks you’ve bought?

Think again.

For those of you who have not heard of the Depository Trust & Clearing Corp. (DTCC) and you own stocks … sit down.  This might change your your whole way of thinking.

Who is the DTCC and what does it do?  The DTCC actually provides clearing for 3.5 million securities from the United States and, get this, from 110 other countries and territories as well — all valued at roughly $28 trillion.  In 2008 alone, the DTCC settled more than $1.88 quadrillion in securities transactions.

The DTCC is also the registered owner and holder of your stock.

At present, the DTCC holds $23 trillion in assets.  It has a virtual monopoly on clearing.  In fact, 99% of all stocks in the USA are legally owned by it.

When Was the Last Time You Saw a Stock Certificate?

Remember the good old days when you bought a stock and received a certificate for it?  The SEC changed that law and went from stock certificates for individual investors to, well, your broker holding the certificate for you so that he or she will be able to legally trade it on your behalf.

The stock certificates were issued in the name of the brokerage … remember, just so they could trade them for you.  In reality, you became the beneficiary of the stocks you bought rather than the owner.

But the SEC, out of the goodness of its heart, changed the laws again, so that now the brokers can’t have the stocks in their name. Instead, the stocks must be placed in the name of "Cede & Co."

The excuse you’ll hear from your broker is that it is just a fictitious name used by the brokerage so it can trade your stocks for you because brokerages can’t, by law, put the stock certificates in their name any longer.

To Whom, Exactly, Have You ‘Ceded’ Your Stocks?

What we have now suddenly all come to find out is the Cede & Co is actually not a fictitious name, but a subsidiary company of DTCC.  In essence, DTCC owns probably 99% of all the stocks in the entire world.

This is how it works.  You buy some shares of stock at your brokerage.  Your broker tells you that, in order to do business on your behalf, you must give the brokerage power of attorney to buy and sell.

Therefore, your stock purchases are placed in a "street name" because, according to the SEC, no brokerage can place a stock in its own name.  The brokerage then notifies the DTCC of the transaction.

The DTCC is a banking trust company and, by SEC regulation, cannot own shares in its own name, either.  So it transfers the certificates to its subsidiary, Cede & Co.

What do you own?

How about nothing?

And now you are not even the beneficiary.  The brokerage is technically the beneficiary.  You are twice removed!

Guess Who’s Also Behind the Mortgage Mess

Recently, DTCC presented testimony before the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.  The hearing was on "Effective Regulation of the Over-the-Counter Derivatives Markets," just a couple of weeks ago, and the transcripts were just released.

The subcommittee is attempting to find out how mortgages could come to be packaged and then sold, and then re-packaged and resold many times over.  Since DTCC owns 99% of all derivatives, it seems only fair that it would be called to give testimony.

Larry Thompson, general counsel for DTCC, applauded the good works of the DTCC.  In his opening statement, he said, "Now, many of you may not have heard of DTCC before. That’s purposeful. We have traditionally kept a low profile, given the critical nature of the role we play in U.S. financial markets."   (Dah … who would have guessed?)

In truth, DTCC knew all about the Collateralized Debt Obligation (CDO) markets, who owned what, how often the same collateral was used and repackaged, etc.  Why?  Because they own it all.

DTCC created a massive computer warehouse and keeps records of all CDO trades, all stock transactions, all derivatives, etc.  It has a monopoly on clearing.  And to justify its great job, Thompson added to his testimony.

"I’d submit to you Mr. Chairman, and Members of the Subcommittee, that had DTCC not had the foresight to create this Trade Information Warehouse and load the Warehouse with all these records of CDS trades in 2007, we might still be sitting here today in 2009 trying to sort out the total exposure of trading obligations following the Lehman bankruptcy, i.e., who traded with whom, at what point in time and at what price?”

Next time you are in the market to buy stocks, trade futures.  You’re only in the trade for four minutes or less.  Not enough time for Cede & Co. to get their mitts on your money. …

Barbara Cohen
Contributing Editor
The Tycoon Report

 

A Lesson In Super Sovereign Currencies: An End To The MOPE and SPIN
Posted: Jul 11 2009     By: Jim Sinclair
      Post Edited: July 11, 2009 at 4:52 pm
Filed under: General Editorial

Dear CIGAs,

Of course the world is not going to replace the dollar as a reserve currency immediately, or for that matter ever. What is going to happen is the IMF or an Asian entity will formulate a basket of currencies and possibly gold into a unit much like the USDX.

There will be an issuing agent and much like the SDR it will be an accounting unit representing the underlying bits and pieces.

It is from this base that Japan has proclaimed major nations should support the dollar. This is management of perspective economics and spin.

What is presently occurring and will accelerate over the coming weeks and months is DIVERSIFICATION out of dependence entirely on the US dollar and the adopting of other currency types even if it takes time to produce the super sovereign currency basket.

The risk the MOPErs take is that the longer the IMF waits due to the risk of dollar damage by issue of this SSCI (Super Sovereign Currency Basket Index), the greater the probability that another entity in the Asian trading block will design this simple entity themselves. An Asian entity would be based on the usual suspects plus their own currency like the Yuan and probably gold.

MOPErs are now caught between facing the fact that central banks outside of North American and Euroland are sharply decelerating their purchase of US Treasury instruments or are playing games for their hot air dollar support that results in the marketplace revealing the SSCI plan by sharp dollar depreciation into the final quarter of 2009.

If the dollar market makes the decision for the IMF then anticipate the last quarter of 2009 to the last quarter of 2010 as the year of dollar hell. The dollar market making the decision for the IMF means the bottom drops out of the dollar rather than the exercising of MOPE’s "Strong Dollar Policy" which is defined as the dollar dropping slowly, rather than catastrophically.

MOPErs have not distinguished themselves by preventing the problem before it has occurred or fixing the real problem. The economic school of MOPErs simply issues more paper to attempt to fix the problem via more MOPE.

You see, the MOPErs are primarily Yalees from one fraternity that control Wall Street which has captured Washington, installing their school of economics of which Greenspan is a major practitioner. When you MOPE you produce nothing but paper bubbles, not sustainable economic gains. You must recall his speeches on market perceptions creating economic occurrences.

You see, one day the MOPErs paper planet melts down. Of course they save themselves by issuing more paper – this time dollars to themselves and they truly don’t give a rat’s ass what happens after that.

So the lesson you need to learn is that all things economic are processes. The dollar is losing its position first as the universal reserve currency, now as the major constituent of international central bank reserves and finally as just another part, not necessarily the majority part, of a new SSCI (Super Sovereign Currency Index) used then as the universal reserve currency.

This make the school of the "dollar will always be a reserve currency" right and wrong. It is right in that it will always be a PART of the reserve basket but WRONG in the implication that this lasting presence means anything bullish whatsoever for the dollar.

Those that hold, like I do, that the value of the US dollar has a long way to go on the downside are right on price, but if they then conclude it is no longer any part of the reserve system they are stone wrong!

Quiz:

1. Does the statement that major government will support the dollar as a reserve currency mean it should rise in price?
2. Will the US dollar always be part of the reserves of central banks?
3. If the US dollar is always part of the reserve of central banks should that be bullish for the US dollar?
4. Why is buying momentum so important to the value of the US dollar now?
5. Why would increased interest rates on 30 year US Treasuries be bearish for the US dollar?

If you can answer these five questions with certainty then you understand what a SSCI is and why MOPE will be useless in 125 days.

Answers:

1. No
2. Yes
3. No
4. A decline in the momentum of buying, even without central bank selling, would hold the most bearish implications for the US dollar.
5. Because that would occur as non-USA buyers of long US paper exited the market as buyers.

Jim,

Gold, silver and dollar contracts certainly suggest that they have been caught flat-footed. I expect another line in the sand to be drawn at 1200-1300 now. It is a dangerous, dangerous game for traders here.

CIGA Eric

Posted at 1:55 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

In a manner somewhat reminiscent of last Friday’s stunning upmove, gold shrugged off early selling pressure tied to some stability in the US Dollar and weakness in crude oil, reversing course around midmorning and tacking $13 onto its trading session low. The buying pushed price all the way to yesterday’s peak and then some.

I am a bit hesitant to go too far out on a limb these days when it comes to market predictions but gold seems to be trading in a fashion that is suggestive of the presence of a large scale buyer who is willing to take on the concerted selling efforts of the bullion banks. The reason I mention this is on account of the dip buying that is taking place which is coming even without much support from the Dollar at times. Whether or not this will continue is anyone’s guess, but the price action is evidence enough for me that, for now, this buying is quite substantial.

Technically, the close above yesterday’s peak in gold brings a very good chance of bringing in further recruits to the bull cause which could easily take price on up to significant technical resistance centered in and around the $980 level. That will be a tough nut to crack for it is the last barrier of note before $1,000 comes into play. Support lies first at today’s low near $953 and then again at $947- $945. Today’s close above $965 is quite friendly.

What is encouraging for the bullish cause for gold is the price action in the miners. Even with the broader equity markets lower today, they are trading higher as I write this choosing rather to move in tandem with bullion rather the rest of the paper world. There is some minor resistance in place near the 380 level on the HUI with the index looking like it wants to challenge that. Besting that level puts 400 into play.

I should also note that the bonds are moving lower today in the face of lower equities. The pending home sales data was friendly and that took the wind out of the bond bulls after they were strongly higher earlier this morning. That data spurred on risk takers once again and that probably more than anything is what brought back buying into the crude oil pit which is attempting to sneak up on $72/barrel. I want to reiterate something I have said many  times before – crude oil is trading more as a currency than a commodity. It has become an inflation hedge which is the main reason that a strict adherence to the demand/supply factors of that market can at times seem to be an exercise in futility for traders. It is really in another world and I see nothing that will change that anytime soon. When risk is in, crude is going to move higher and when risk is out, crude is going to move lower. It is pretty much that simple – for now!

Copper simply refuses to stay down and silver too is apparently joining the metals’ party. A sleeper metal has been palladium, which quietly made an 11 month high today. It looks to be tracking the increase in auto sales. Maybe that has something to do with the government’s “cash for clunkers” program.

I am waiting for the “cash for ice box clunkers” ( I need a new refrigerator), the cash for noisy washing machines (I need a new washer) and the cash for “dirty, environmentally unfriendly clothes dryers” program. I actually installed one of those highly energy efficient SOLAR CLOTHES DRYERS ( around here we call it a clothes line) and am waiting for my check from the feds on that. Personally I think we should have a “cash for big screen TV’s” program since the older ones are so energy inefficient. Don’t forget the “cash for new fluorescent light bulbs” program. With all these nifty handouts, no wonder the commodity world is so happy these days.

Poor ol pork bellies are one of the few commodities not joining the happy parade – they are limit down today. Looks like folks need to go out and eat more bacon and do their civic duty.

The CCI (Continuous Commodity Index) is looking more and more like it is presaging a trending move higher in the entire commodity complex. It completed a nearly textbook 50% retracement move from its December 2008- June 2009 move higher and is now demonstrating a move up and away from that level. The key to any trending move in the complex will be whether or not it can take out its June peak. If it can, the deflationists have lost the battle and the inflationists have been vindicated. Stay tuned on this one.

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

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