Posted at 9:01 PM (CST) by & filed under General Editorial.

Dear CIGAs,

Add this to the Begging Bowl Fed loan window and TARP:

Quantitative Easing

Be prepared to watch the Federal Reserve over the next 18 months as this is the last of two arrows left in the quiver. Quantitative Easing is going to look more and more attractive.

Quantitative Easing is the process of dumping money directly into business enterprises. The other tool is simple – announce a target of 2% for 10 year bonds to further drop mortgage rates as you Helicopter Drop funds directly into non-financial business enterprises for the public to pick up and spend. This is a tactic added to the Begging Bowl Fed loan window and TARP.

Business glossary
Quantitative Easing
Guardian.co.uk, Tuesday October 14 2008 12.10 BST

Quantitative easing is what non-economists call ‘turning on the printing press’.

In extreme circumstances, governments flood the financial system with money, easing pressure on banks and business entities by giving them extra capital.

Ben Bernanke, the chairman of the Fed, won the nickname ‘helicopter Ben’ when he floated just such an idea earlier this decade. US economist Milton Friedman had originally said it would be theoretically possible for governments to drop large amounts of cash out of helicopters for the public to pick up and spend.

More…

Dear Jim,

Many respected commentators, even in our camp, warn not of hyper-inflation but rather a bone chilling depression.

Help me please.
CIGA Arlen

Dear CIGA Arlen,

History declares that all major hyper-inflation started in depressive to depression type business conditions as a currency loss of confidence event.

The key is the word HYPER which means a total currency unwind.

Large inflationary periods are products of the mechanics that creates bubbles, but are not HYPER in nature.

Bubble-Inflation and Hyper-Inflation are two distinctly different events

All "Hyper-Inflation" events have occurred as a product of "Quantitative Easing." Google that term and study it.

The Fed has announced their move towards "Quantitative Easing" because of all that occurred so far in bailing out the good ole boys that caused the problems with their damn OTC derivatives, now known as "Toxic Paper."

All the best,
Jim

Posted at 8:51 PM (CST) by & filed under Jim's Mailbox.

Dear Friends,

I have received close to 700 emails today. I will do my best to reply, yet at this number the task is quite overwhelming.

Truth be known, almost every question has already been answered here on JSMineset.com.

Respectfully yours,
Jim

Dear Jim,

The litany of disasters continues. The Fed has only one alternative to improve its balance sheet – get money from the Federal Government. The government can either borrow from the world through debt issuance, or they can print money. Either alternative exercised is very bad for the US dollar and very good for gold. As always you have called it again and again.

Respectfully yours,
Monty

Has the Fed Mortgaged Its Own Future?
By JACK WILLOUGHBY

The Fed’s highly leveraged balance sheet will make it hard to fight inflation.

IF THE FEDERAL RESERVE BANK WERE A COMMERCIAL LENDER, it would be a candidate for receivership, based on its capital ratios. Bank examiners generally view any lender with a ratio below 2% to be dangerously undercapitalized. The Fed’s current capital ratio, or capital as a percentage of assets, is 1.9%.

The Fed has provided so many loans and emergency credits — to banks, brokers, money funds and foreign countries — that its balance sheet, viewed one way, is as leveraged as any hedge fund’s: Its consolidated assets amount to 53 times capital. Only 11 months ago, its leverage on this basis was a more modest 25 times, and its capital ratio 4%. A caveat: Many of the loans are self-liquidating facilities that will disappear in a few months if the financial crisis eases.

Although the Fed’s role as a central bank is much different from the role of a private-sector operation, the drastic changes in the size and shape of its balance sheet worry even some long-time Fed officials. Its consolidated assets have swelled to $2.2 trillion from $915 billion in about 11 months, and contain at least a half-dozen items that weren’t there before. Some, like a loan to backstop the purchase of a brokerage, Bear Stearns, are unprecedented. (See table for highlights.)

Critics say this action could hinder the Fed in achieving its No. 1 priority: keeping inflation in check. To try to get in front of the crisis, many decisions have had to be made on the fly.

"If the Fed had been [a savings-and-loan] ballooning its balance sheet so fast, the supervisors would have been all over it," says Ed Kane, a Boston College finance professor.

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Dear Jim,

In the heart of this derivatives crisis insurance companies are still selling their junk to unsuspecting customers seeking yield. If sovereign bonds are having trouble you can just see these products will blow up in the future, leaving investors hi and dry again and needing more government money.

Keep up the great work,
Ciga Big Tatanka

Insurers cash in on deflation fears
Firms are using the volatility of the stock markets to push poor products
Jennifer Hill

Investors are being lured into discredited products by insurers keen to capitalise on tumbling interest rates and volatile stock markets.

Legal & General (L&G) has reported a 186% surge in sales of with-profits bonds in the first nine months of the year, while Prudential saw a 174% jump in business. Norwich Union has sold bonds worth £1 billion in the first nine months alone.

With-profits bonds, which had fallen out of favour after the mis-selling scandals of the 1980s and 1990s, are an easy sell in the current climate because they are pushed as a “halfway house” between equities and deposit accounts. They invest in a mix of shares, gilts and cash, so claim to be less volatile than the equity markets.

They are also attractive to income seekers because they allow you to take an income of up to 5% a year with no immediate tax to pay. This is particularly attractive following this month’s 1.5 percentage point cut in Bank rate.

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Dear Big Tatanka,

When these people depart the mortal coil the only way to keep them departed is to screw them into the ground.

As long as there is someone stupid enough to buy something, someone will manufacture and sell it.

Regards,
Jim

Posted at 3:40 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Short term profit taking did not last very long last evening and early this morning as dip buyers wasted little time in making their presence felt. Technically, this is quite positive as it indicates growing confidence on the part of the bulls and growing apprehension on the part of the bears. Last evening it had appeared that the bears were going to beat gold back down towards $780 but the upward surge in the Euro and the rally in the equities over the CITI bailout news was too much for the gold shorts. Amazing what a few billion dollars sprinkled hither and yon can do for a reflation trade.

I should note here that gold priced in terms of British Pounds shot to a new all time high today. The PM fix came in at 546.875 – that was not only the highest PM fix ever, but it was also higher than the previous high AM fix. Is it any wonder that at 3:00 AM, CST, when London traders were fully awake, that Comex gold exploded higher shaking off the early profit taking that occurred in Asian trading. I will try to get some charts up this evening of gold priced in various currencies as a point of reference as it has been a while since I have done that.

Open interest in gold did see an increase in Friday’s strong upside day; however, given the size of the move higher and the huge volume, the change in open interest of an increase of a bit more than 3,000 contracts suggests that my thoughts on Friday were correct – namely – a huge amount of shorts from the spec side were squeezed out. The move above the $780 level took out their buy stops and also brought in some of that money which has been sitting on the sidelines. Long side specs need to make sure they do not forget that a winning strategy to beat the commercial shorts in this market is to stand for delivery and not just play the paper game. Take the gold away from the warehouses if you want the real metal in possession as well as depriving the bears of their ammunition. They came back to play about 30 minutes prior to the close of pit session trading and bopped it down $6.00 just to make a statement. Don’t forget where their Achilles’ heel lies. Without the physical metal in the warehouse to back them, they are huffing and puffing and can only bluster.

Technically, gold has smashed through the 50% retracement level from the October peak in very convincing fashion. There looks to be some light resistance in place near the $830-$835 level. Above that is even numbered resistance near $850 and then $880. Downside support is light near $810, stronger support following that near the $790 level and much more significant support now moving up to $770.

The HUI and the XAU are showing much improved looking price charts at this point in the trading session. The HUI’s 50 day moving average has been hit in today’s trading and is serving as upside resistance. The 50 dma must be taken out to turn the technical pictures firmly in favor of the bulls. If the HUI can then go on to break downsloping trendline resistance near the 250 level that should seal the deal and put the bulls back in charge. First it needs to close above horizontal resistance near 225.

The delivery picture for November gold continues to show Bank of Nova Scotia as the main stopper of size. There were a total of 75 deliveries issued early this AM with BNS taking 46 of them. Morgan issued another 20 with Prudential being the largest seller today and issuing 51. The December contract will soon be entering the delivery period, so if you want gold in December and do not have a long position, you will  be able to enter Monday of next week.

Regarding the Dollar – the USDX had been showing signs of negative divergence for some time now as all of the technical oscillators were showing definite signs of waning momentum with the move higher in the USDX not being confirmed by the indicators. Selling resistance has proven to be quite fierce near the 89 level with the Dollar unable to take out that level and maintain its footing above there for long. The breakdown in the Dollar in today’s session confirms that divergence has been valid; however, I would want to see two consecutive closes below the 85 level to confirm that a top is in the USDX. The broad Dollar Index that I track has not been as weak as the USDX. That might change however with today’s general failure. I prefer to see both indices confirming the other.

With the kind of wicked volatility we have seen in these markets, confirming much of anything in these markets is at best a bit tricky and at worst, a fool’s game. Simply put, news of another failure elsewhere could prompt a whole new round of liquidation all over again with the Dollar getting another temporary lift as a result. Still, with everything going in its favor from a deleveraging standpoint and  redemption-related repatriation from abroad, coupled with massive Chinese purchases of US Treasuries, the fact that the Dollar could not plow through the 89 level and on to 90 is most telling.

The weakness in the Dollar is providing the lift across a broad spectrum of the commodity markets this morning. All of the grains are getting a very strong boost as shorts cover and new longs move in on the idea that the weaker dollar will provide a desperately needed boost to our ag markets. While some have been cheering the surging dollar, US exporters have been cursing the rally coming at a time when they really needed the business from abroad. A stronger dollar combined with credit tightness has been killing US grain and farm exports of late.

Crude oil has put in a nearly $6.00 swing from its session low to its current session high with the liquid energies of course seeing corresponding moves higher in price. Nat gas is higher as well with the cold weather helping to further buying from specs already in the mood to buy tangibles. Copper, platinum and palladium all putting in decent sized gains today with silver in particular having a banner day. If silver can clear 10.80 and maintain a price above that level, it has a chance at making a trending move higher.

Bonds are getting dumped today with weakness associated with the surge in the equities. Interestingly enough, gold has been outperforming bonds as the safe haven play for the last couple of trading sessions. In my opinion, this is because the yields on treasuries are simply too low for those looking to protect their wealth given the fact that the US is cranking out immeasurable sums of paper to throw at all the problems breaking out like a good case of Poison Ivy.

The Euro-Yen cross is as expected, strongly higher today, with “risk” back in vogue as the Japanese Yen gets dumped. How fickle are thy lovers Oh coin of the rising sun! the first sign of trouble they will come running back to you however.

The rally in the US equity markets has brought the emini S&P into the 10 day moving average. While the rally from the recent low  has been quite impressive, in the larger scheme  of things, a rally in a bear market back to the 10 dma is not really saying much. The 20 day stands near the 895 level with the 40 day at the 939-940 level. To have even a prayer at turning the longer term chart pattern more friendly, the S&P would need to take out the 50 day near 992. 

Click chart to enlarge today’s 12 hour action in gold in PDF format as of 12:30 pm CDT with commentary from Trader Dan Norcini.

November2408Gold1230pmCDT

Posted at 2:00 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

1. The bailout begging bowl program will continue to grow according to the US Federal Reserve using the plural of trillions. 
2. The financially Democratic approach, which taxes the haves and uses fiscal stimulation, will be building roads, schools, and financially securing major employers.
3. The combination is out of control while it will produce lower tax revenues. Increase taxes on the haves only means more attorneys to reduce the taxes of the haves. The real taxpayer in the US is the average family.
4. Confidence will be lost as all plans FAIL.

U.S. Approves Plan to Help Citigroup Weather Losses
By ERIC DASH
Published: November 23, 2008

As part of a rescue agreement with federal regulators, Citigroup will effectively halt dividend payments for the next three years and will agree to restrictions on and review of certain executive compensation, it was announced on Monday. The bank will also put in place the Federal Deposit Insurance Corporation’s loan modification plan, which is similar to one it recently announced.

Federal regulators announced late Sunday night that the government had approved a radical plan to stabilize Citigroup in an arrangement in which the government could soak up billions of dollars in losses at the struggling bank. President Bush said on Monday that more such rescues could be arranged if they became necessary.

In pledging similar assistance, President Bush said, “We have made these kind of decisions in the past, made one last night, and if need be we’re going to make these kind of decisions to safeguard our financial system in the future.”

Speaking from the steps of the Treasury Building with Secretary Henry M. Paulson Jr. beside him, the president said Mr. Paulson was working closely with the transition team of President-elect Barack Obama, and that the new president would be kept informed.

More…

Posted at 1:52 PM (CST) by & filed under General Editorial.

Dear Friends,

I am repeating this small missive because with the trillion dollars worth of more funds promised to financial institutions this morning by the Fed (which means the Obama Administration) plus the upcoming huge Fiscal Stimulation to create jobs, hyperinflation cannot and will not be avoided.

The spin is that in order to transmute hyper liquidity into hyperinflation you must have an improvement in business conditions. This is totally FALSE. History declares that hyper inflation comes from a loss of confidence followed by a sequence of events as outlined at the close of the missive.

Prior Article:

1. Hyperinflation takes birth and is currency-visible during major economic upheavals. There is NO historical truth that business recovery is a necessary criterion to transmute massive increases in money supply into hyperinflation.

2. What has been the major cause of the transmutation of massive liquidity into hyperinflation has been one form or another of Quantitative Easing combined with a loss of confidence in the inflator.

Quantitative Easing does not sterilize its offspring – violent inflation. We will see this offspring not in the far future but in 2009, 2010, 2011 and maybe much further.

It is akin to the Japanese Sci-Fi out of the 70s titled “The Green Blob That Ate the Earth.” It just grew and grew until it consumed everything.

For the moron financial TV hosts claiming that major inflation is well down the road because inflation requires a business recovery to occur, tell them to review:

Angola 1991-1999
Argentina 1981 – 1992
Belarus 1993 – 2008
Bolivia 1984 – 1986
Bosnia – Herzegovina 1992 – 1993
Brazil 1986 -1994
Chile 1971 – 1981
China 1948 – 1955
Georgia 1993 -1995
Germany 1919 -1923
Greece 1943 – 1953 At the high point prices doubled every 28 hours. Greek inflation reached a rate of 8.5 billion percent per month.
Hungry 1944 – 1946
Israel 1971 – 1985 (price controls instituted)
Japan 1934 – 1951
Nicaragua 1987 – 1990
Peru 1987 – 1991
Poland 1990 – 1994
Romania 1998 – 2006
Turkey 1990 – 2001
Ukraine 1992 – 1995
USA 1773 – not worth a Continental
Yugoslavia 1989 – 1994
Zaire 1989 – present (now the Congo)
Zimbabwe – 2000 to present. November of 2008 – inflation rate of 516 quintillion percent

From http://en.wikipedia.org/wiki/Weimar Republic

The steps to hyperinflation are and have throughout history always been quite simple:

1. This is it.
2. It is now.
3. It is out of control in terms of the size and constancy of fiscal and monetary injection in world liquidity.
4. Loss of general confidence in paper assets.
5. Hyperinflation

Please understand how important it is for your knowledge of economic history, and therefore why this missive is repeated and emailed to those who have expressed their interest in closer contact.

Have you really considered the following:

I have no doubt that $1650 will come. My concern is not that it will not happen, but that I am much too conservative in my long-term price objective held since 2000.

If major banks can be torn apart how can we have faith in the small local institutions that hold most of your ready cash?

When I said "It is Out of Control," it is not something that I take lightly. Never in 49 years in finance have I seen a set of circumstances so challenging to the man in the street.

What I am getting at is a simple question. Are you prepared? You have heard us talk repeatedly on removing financial intermediaries between you and your assets, but the time has come for us to recommend going one step further:

Do you have a true-custodial-ship account?

Even if you think you do has your counsel read the agreement and blessed it?

Hold enough cash at your household to last you a month or two. It may be largely unnecessary for the majority, but what do you have to lose?

If your bank should fail this will save you a lot of grief in the short term. If they do not, you still have all your cash that can easily be deposited back into your account.

Respectfully yours,
Jim

Posted at 8:41 PM (CST) by & filed under In The News.

Dear CIGAs,

Major banks don’t fail, they just fade in another.

Plan to Rescue Citigroup Begins to Emerge
By ERIC DASH and GRETCHEN MORGENSON 5:12 PM ET

Federal regulators were considering a new rescue for Citigroup on Sunday, a step that could mark a third leg of the government’s broader efforts to bolster the nation’s financial industry, according to people briefed on the plan.

Under the proposal, the government would shoulder losses at Citigroup if those losses exceeded certain levels, according to these people, who spoke on the condition that they not be identified because the plan was still under discussion.

If the government should have to take on the bigger losses, it would receive a stake in Citigroup. The banking giant has been brought to its knees by gaping losses on mortgage-related investments.

If approved, the plan could serve as a model for other banks, heralding another shift in the government’s morphing financial rescue. The Treasury Department initially proposed buying troubled assets from banks but then reversed course and began injecting capital directly into financial institutions.

The plan for Citigroup was still under discussion on Sunday afternoon, and it was unclear exactly how the arrangement might work. One question is how Citigroup and the government would determine the level of losses that the bank itself must bear before the government steps in. Another is whether any additional government money for Citigroup, which has already received $25 billion under the initial rescue plan, would come from the $700 billion industry bailout that Congress approved in October or from other sources, like the Federal Reserve or the Federal Deposit Insurance Corporation.

Regulators were debating various terms of the arrangement on Sunday, including whether the government would receive preferred stock or warrants, which are instruments that give holders the right to buy stock. Preferred stock would be more beneficial to taxpayers because Citigroup would pay dividends on those shares; warrants would be more attractive to Citigroup’s existing shareholders, since they would not immediately dilute the value of their investments as much as preferred stock.

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Jim Sinclair’s Commentary

All that is required is the reinstatement of the up trick rule and enforcement of the rules against naked short selling.

New push to curb short-selling
Miriam Steffens
November 24, 2008

COMPANIES whose stocks came under heavy attack last week from short-sellers are hoping that a meeting of international sharemarket regulators will bring some respite, having so far unsuccessfully lobbied Canberra and the market watchdog in Australia.

The chairman of the US Securities and Exchange Commission, Christopher Cox, said on Friday he would convene a telephone conference of international regulators tonight to discuss "urgent regulatory issues" dealing with the sharemarket meltdown, which sent America’s S&P 500 down 8.4 per cent last week and prompted a 7.5 per cent slump on the Australian sharemarket.

"In addressing turbulent market conditions, it is essential not only that regulators act against securities law violations, including abusive short-selling, but also that there be close co-ordination among international markets to avoid regulatory gaps and unintended consequences," Mr Cox said.

The talks would also look at whether recent steps to reduce manipulative short-selling, such as temporary bans, were effective.

The meeting comes after industry groups and companies targeted by short-sellers in Australia started lobbying the chairman of the Australian Securities and Investments Commission, Tony D’Aloisio, and the Minister for Corporate Law, Nick Sherry, last week.

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Jim Sinclair’s Commentary

This is the definition of out of control.

Obama readies with massive US rescue package
Anne Davies, Washington
November 24, 2008 – 7:49AM

President-elect Barack Obama is considering a possible $1.1 trillion economic stimulus package in a bid to create or save 2.5 million jobs as soon as he takes office on January 20.

Senior Democrats today revealed they were pushing Mr Obama to massively up the ante on the $US61 billion rescue plan already rejected by the Senate and President George Bush.

The emergency package is being worked on by Mr Obama’s economic team and senior members of Congress, as economists warn that America now risks the far more serious prospect of a very deep recession and falling prices, similar to the Great Depression.

A formal lannouncement on the package is expected today on Monday US time.

Over the weekend several senior Democrats delivered broad hints about the scale and scope of the new President’s plans, in a round of television interviews designed to reassure the US markets before they open on Monday.

Charles Schumer, the senior Democrat from New York and Joint Economic Committee chairman, told US ABC television that the stimulus package needed to be between $US500 billion ($800 billion) and $US700 billion ($A1.1 triillion).

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Jim Sinclair’s Commentary

Recall your history classes and "Manifest Destiny." These early tests of the new President can get ugly.

Russia president, warships to Venezuela to counter U.S.
Sun Nov 23, 2008 2:24pm EST
By Frank Jack Daniel

CARACAS (Reuters) – Warships, nuclear power, arms sales and perhaps cooperation on oil prices — Russia’s President Dmitry Medvedev is in Venezuela this week with an alarming sounding list to wave under Washington’s nose.

The U.S. government dismisses the importance of Medvedev’s visit on Wednesday to meet Venezuelan President Hugo Chavez and the deployment of several Russian warships for joint military exercises with Venezuelan forces in the Caribbean. It says Russia’s weak navy is no threat and downplays its rivals’ blooming friendship.

But OPEC-member Venezuela is Russia’s first firm ally in the Americas since the Cold War and Moscow sees ties to Chavez as a way to answer U.S. influence close to its borders in the Caucasus.

Russia’s aim to grow its Latin American presence may be hurt by falling oil prices and Barack Obama’s U.S. election win, which could help the United States regain influence lost in the region during the unpopular presidency of George W. Bush.

Still, Chavez has made a career of opposing the U.S. "empire" and he welcomes a heavyweight partner like Russia as an alternative to ties with his main oil client Washington.

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Jim Sinclair’s Commentary

It is out of control.

Events Turning Violent In Iceland
by Eric deCarbonnel
Saturday, November 22, 2008

The Guardian reports that Icelanders demand PM resignation, clash with police:

Icelanders demand PM resignation, clash with police
Reuters, Saturday November 22 2008

REYKJAVIK, Nov 22 (Reuters) – Thousands of Icelanders demonstrated in Reykjavik on Saturday demanding the resignation of Prime Minister Geir Haarde and Central Bank Governor David Oddsson for failing to stop a financial meltdown in the country.

It was the latest in a series of protests in the capital since the financial meltdown that crippled the island’s economy.

Hordur Torfason, a well-known troubadour in Iceland and the main organiser of the protests, said the protests would continue until the government stepped down.

"They don’t have our trust and they are no longer legitimate," Torfason said as the crowds gathered in the drizzle before the Althing, the Icelandic parliament.

A separate group of 200-300 people gathered in front of the city’s main police station demanding the release of a young protester being held there, Icelandic media reported.

Police in riot gear used pepper spray to drive back an attempt to free the protester during which several windows at the police station were shattered. The protester was later released after a fine he had been sentenced to pay was paid.

More…

Posted at 8:38 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

First Iceland, then Ukraine, Romania, Lithuania and now Ireland! The UK, France and Italy are not far behind!

Best,
Ciga Big Tatanka

Bailout for Bank of Ireland
Aine Coffey
November 23, 2008

THE Irish government has agreed to take part in a €3 billion (£2 billion) bailout of Bank of Ireland that will be led by private equity. The deal would be the first state aid for an Irish bank.

This week a number of private-equity groups will make proposals to BoI. A condition of the government cash injection will be that new investors are locked in for a set time to ensure they don’t try to sell quickly and make a big profit.

Names already linked with a potential investment include Cardinal Asset Management, an Irish investment firm, Sandler O’Neill, Texas Pacific Group and JC Flowers.

Ireland was one of the first countries to respond to the credit crisis with a guarantee for bank liabilities worth some €440 billion, but until now it has not bailed out or nationalised any banks, and they have not raised equity themselves.

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Jim,

Gold has held up remarkably well despite the fear and pessimism. Humans tend to fear that which they don’t understand. The enemy of fear is knowledge. If the dollar is indeed headed to 0.52, the USDX to gold ratio has a technical target of at least 0.015. This suggests a gold price north of $1650. Something you have suggested as a possibility more than once.

The public really has no idea.

Regards,
Eric