Posted at 1:28 AM (CST) by & filed under General Editorial.

Dear CIGAs,

When the Rappers have it figured out we are getting dangerously close to the unavoidable HYPER-INFLATION, a currency event, and to serious social unrest.

Do not play this if rap is offensive to you. This is not for the kids, please.

Posted at 6:19 PM (CST) by & filed under General Editorial.

Dear CIGAs,

After a long trip I am now safely at home and would like to share the following picture of myself in RSA with one of my African family. After catching up on some rest I will be back up to speed here on JSMineset.

10012009153

Posted at 6:15 PM (CST) by & filed under Guild Investment, Jim's Mailbox.

Dear Jim,

To say that this rating agency is peopled by ignoramuses is way too kind. That goes for the other rating agencies as well. They are either completely ignorant, they are suffering from a huge conflict of interest, or both.

Respectfully yours,
Monty Guild
www.GuildInvestment.com

"Moody’s Investors Service announced today that it has revised and updated certain key assumptions that it uses to rate and monitor corporate synthetic CDOs. Moody’s will immediately start reassessing all of its outstanding corporate synthetic CDO ratings across 900 transactions in the U.S., Europe and Asia using these updated assumptions. Based on initial assessment, Moody’s expects to lower the ratings of a large majority of corporate synthetic CDO tranches by three to seven notches on average. The actual magnitude of the downgrades will depend on transaction specific characteristics such as tranche subordination, vintage and portfolio composition…Moody’s is increasing its default probability assumptions for financial and non-financial corporate credits in the reference pools of synthetic CDOs by a factor of 30% across all rating categories…POSTBANK…hrx…deutsche…etc"

Posted at 5:20 PM (CST) by & filed under Guild Investment.

Dear CIGAs,

The excellent Shadow Government Statistics economic service (shadowstats.com) makes the following statements today, January 16,2009 in a flash update.

“The annualized real contraction for fourth-quarter 2008 retail sales was 17.1%”

“Consistent with a still-deepening recession, fourth quarter 2008 production showed an annualized quarterly contraction of 11.5%, following an 8.9% contraction in the third quarter.”

“ A depression is defined [SGS] as a recession where peak-to-trough contraction exceeds 10%, a level currently exceeded in annualized terms by both fourth-quarter real retail sales and industrial production.”

SUMMARY

Since we at Guild Investment Management predicted several months ago that we were entering a moderate depression, rather than a recession during the current downtrend, few have agreed with our view. The above data by Shadow Government Statistics show that the trends in retail sales, which is considered a leading economic indicator, and in industrial production are strongly indicative that a depression is in the process of developing in the United States.

Respectfully yours,

Monty Guild
www.GuildInvestment.com

Posted at 3:58 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Gold was the recipient of “reflation” flows as money flowed back into the commodity sector today on news that the remaining $350 billion in the TARP was going to be released. That served to undercut safe haven flows into the dollar and definitely into the bonds, with commodities as a sector generally benefiting. As I wrote the other day, if you don’t like the current investor sentiment, stick around a day or so, it will flip 180 degrees and then do that same thing again a few days after that. Perhaps next week we go back to deflation paranoia. Who knows and who really cares at this point since all that matters in these markets is money flows – nothing else.

From a technical perspective gold bounced exactly where it needed to bounce in order to keep the technical charts from deteriorating. It did however run exactly into overhead resistance in today’s rally where it was summarily capped by the usual crowd. The bulls have dodged a bullet and deserve credit for their performance and grit but they need to force the shorts out of their defense line at $840 to give them a shot at $860. They are attempting to do that even as I write this commentary. Hats off to those fund managers who actually bought into the weakness in gold for a change instead of selling downward momentum.

While it is a bit difficult to see on the 12 hour chart, gold has actually been forming a reverse head and shoulders chart with one shoulder near $750 in early September 2008 and the head near the $700 level in late October and early November. The last shoulder  and this is ONLY A POTENTIAL shoulder is the low made yesterday. To confirm this, gold would need to break out above the $880 level in a convincing fashion. That once again serves to underscore the significance of that pesky $880 level.

For now, resistance stands at today’s high near $840 followed by stronger resistance between $855- $860. Support remains just above the $800 level.

The mining shares as indicated by the HUI and the XAU bounced off the 50 day moving averages and are now running into resistance near their down-trending 10 day moving averages. The HUI is attempting  to climb back above broken support near the 266 level but is encountering difficulty with the broader equity markets sinking back into negative territory. The XAU’s chart is actually better looking than that of the HUI as it managed to climb back above broken support near the 107 level but it too has run into selling in the zone between the falling 10 and 20 day moving averages at today’s session high.

Grains are all strongly higher today with Argentina’s drought news putting a firm bid under the soybean market which is effectively pulling wheat and corn along for the ride. That move in the grains has my attention as they have been tracking closely with gold’s overall performance.

Crude oil is lower today after violating support yesterday near the $35 level which makes the rally in some of the other commodities all the more noteworthy. I do hope that we are reaching the point where these various markets begin to trade on their own set of fundamentals rather than the mindless idiocy we have had to sit through watching index funds and hedge funds spit them all out en masse or buy them all up en masse. Crude needs to get above $40 in the February to have a shot at a bottom being formed.

Bonds had collapsed at one point today when the stock market was moving higher and safe haven flows abruptly reversed but as the equity markets faded and crude moved lower, the bonds began moving well off their lows. Judging from last evening’s Federal Reserve Custodial Accounts data, foreign Central Banks continue to GORGE themselves on US Treasury paper while continuing their exodus from US agency debt. As long as this FCB bank buying of Treasuries continues in such size, it is difficult to see the collapse of the bond market bubble occurring anytime soon. It will collapse however and when it does, the sound will be heard around the world as it will occur very quickly.

The dollar was stymied up between the 86 – 85 level which is the former support region from October and November of last year. Technically it looks like a failure to climb back above the 86 level quickly and the Dollar is headed back to 82 with a possible test of 80 occuring.

Enjoy your weekend and the holiday on Monday.

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

January1609Gold1230pmCDT.jpg

Posted at 5:21 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

Yikes! Why is S&P picking on Spain with these numbers coming out of the US?

Best regards,
CIGA Richard B.

Treasury: deficit hits new record in just 3 months
Treasury: federal deficit already totals record $485 billion in first 3 months of budget year
Martin Crutsinger, AP Economics Writer
Tuesday January 13, 2009, 5:11 pm EST

WASHINGTON (AP) — The federal government already has run up a record deficit of $485.2 billion in just the first three months of the current budget year. And economists say the imbalance for the full year could easily top $1 trillion, pushed to that eye-popping level by the spending the government is likely to do to combat the recession and the most severe financial crisis in generations.

The Treasury Department reported Tuesday that the deficit for December totaled $83.6 billion, a sharp deterioration from a year ago when the government managed a surplus of $48.3 billion.

All the red ink comes from the massive spending out of the financial rescue program — $247 billion out of $700 billion spent so far — and a prolonged recession that has depressed tax revenues.

The overall deficit from October through December is the highest on record for a first quarter and surpasses the mark for a full budget year of $454.8 billion set last year.

More…

Dear Richard,

1. Because rating agencies now predate prostitution as the oldest occupation in human history.
2. Because if they down-rated the dollar they would have to close shop the next day.

Take your pick. I know you can add more.
Jim

Jim,

Another sickening example of the pre-hyperinflationary symptom of restricting bank data from the view of the people. Pass the Weimar baton.

CIGA Ken

BoE secret money printing
[Monday, January 12, 2009 | 0 comments ]

Billionmark comment

Weimar style policy is now global. With nothing backing paper currencies except other currencies disaster awaits. As Marc Faber says "citizens, who are not dumb, realize that the Central Banks are engaged in a contest to print the most money, to keep the cost labor low, the employment high and to erase the Nationial debts. This will destroy the currencies, confidence and create instability……I expect there maybe a panic into Gold and a scramble into physical gold"

from the UK Telegraph

The Bank of England will be able to print extra money without having legally to declare it under new plans which will heighten fears that the Government will secretly pump extra cash into the economy.

The Government is set to throw out the 165-year-old law that obliges the Bank to publish a weekly account of its balance sheet — a move that will allow it theoretically to embark covertly on so-called quantitative easing. The Banking Bill, which is currently passing through Parliament, abolishes a key section of the law laid down by Robert Peel’s Government in 1844 that originally granted the Bank the sole right to print UK money.

The ostensible reason for the reform, which means the Bank will not have to print details of its own accounts and the amount of notes and coins flowing through the UK economy, is to allow the Bank more power to overhaul troubled financial institutions in the future, under its Special Resolution Authority.

More…

Posted at 3:54 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

It was another one of those mass long liquidation days by index funds and hedge funds as nearly everything that remotely resembled a commodity or was associated with commodities was jettisoned in favor of paper IOU’s (also known as US bonds). About the only commodities that I could see that were in the plus column today were the grains, particularly the soybean market which found buying on drought fears out of South America and wheat which found support out of hard freeze fears. Corn went along for the ride. Other than that the continued idiocy in the futures markets continues with panic buying one day giving way to panic selling the next.

I know I risk sounding like a scratched CD but the hedge funds and index funds have created near chaos in the markets with no clear, durable signals being generated- the result is confusion and volatility that gives the lie to the efficient market theory. How can markets be the least bit efficient when commercial end users and legitimate hedgers cannot even use them because of the massive amounts of price foam being churned up by these out of control funds? You’ll remember that it was just a few days ago when near euphoria reined in the markets over the upcoming new stimulus plan – that euphoria sent the funds tripping and drooling all over themselves to establish longs – now we are back to manic depression and they are tripping and drooling over themselves running for the exits. Now imagine a bona fide commercial hedger attempting to formulate some sort of hedging plan to offload his risk and lock in profits while at the same time attempting to limit huge margin calls on that same hedge. My point is quite simple – the futures markets came into being as a mechanism to allow producers and end users to manage risk – that advent of speculators was designed to facilitate that end – we have now reached the point in my opinion where the entire purpose of the futures market has to be questioned. Either the regulators get off their butts and institute serious reforms in these markets, notably being a drastic curtailing of the position size of these players, or they risk having commercial end users begin to look at serious alternatives to using these markets for hedging purposes. If that were to happen in size (it is already occurring), all that will be left in the futures markets is funds playing against other funds. Then we will have nothing but casinos left. The biggest problem I see standing in the way of these reforms might very well be the commodity exchanges themselves who are now public companies and love the extra volume being generated by the incessant trading activity of the funds. That is good for exchanges SHORT term as it increases profits and makes members and shareholders happy. The problem is, like so much in the West these days, such an attitude sacrifices LONG term viability for short term gain. But enough of my little soap box rant for now.

Gold was caught in the crosswinds stirred up by the funds as this liquidation clashed with safe haven buying. It did not help paper gold any to see the technical breakdown in the HUI and the XAU whose charts have turned decidedly bearish. I have been mentioning the 260 level on the HUI and the 107 level on the XAU – those are well behind us now with the only hope the bulls now have is for support to emerge near the 50 day moving averages which come in near 241 for the HUI and 100 for the XAU. Failure there and we could see the HUI back down near the 200 level. The HUI and XAU must quickly get back above 260 and 107 respectively to turn the selling tide.

The commodity currencies, the Australian, Canadian and New Zealand Dollars, were all weaker against the US Dollar today although the Aussie managed to work upwards at one point and move into the plus column. Surprising strength was seen in the British Pound. The Swiss Franc was higher while the Euro came well off its worst levels of the session although is still lower against the greenback. Ongoing concerns over Europe’s economy and the downgrading of several member countries’ sovereign debt continue to weigh on the Euro. The Japanese Yen continued its ridiculous rise as further carry trade unwinding occurs there. One has to wonder when the apparently sleeping Japanese monetary officials are going to saunter out of their dens and inflict their vengeance on the specs who have done this to their yen. Having been on the receiving end of their forays into the market, all I can say is heaven help the yen bulls when this tiger finally comes forth. For now they continue to press their advantage against the monetary lords of Japan.

Bonds are back in full bubble mode after having bounced, stabilized and then said, “Let’s go back to the stratosphere where the air is cleaner”. They are currently trading between the 10 day and 20 day moving averages with the 40, 50 and 100 day all moving solidly higher. Whether the top is in will be seen if we can set up a retest of those recent highs above the 140 level. We may or may not get there; I simply am not sure and with the bonds’ behavior lately, who knows?

Technically gold bounced off of horizontal support just below the $810 level which also closely corresponds to the 100 day moving average. That level has to hold firm to prevent even more spec selling which could potentially take the market down below the $800 level. Resistance remains in place near yesterday’s high ($830) followed by $860.

Pulling back and looking at the weekly continuous chart, the 100 period moving average comes in near $798 with gold bouncing off of the 20 week moving average at $807. This serves to reinforce the technical significance of the region where today’s lows in gold were made.

The short term daily trend in gold is down while the intermediate term shows a down-sloping trendline drawn off the peaks made last year is still in effect. That line has served to cap upward movement and it is no coincidence that the bullion banks came in near the $880 level, which is where that line hit last week. They read the same charts we do, which is just another reason for the funds, who trade against them, to wise up and think for a change. The long term trend remains higher. Gold bulls will have to push prices back above $840 to send a bit of concern into the bear camp.

We still continue to see index fund liquidation related to that infernal commodity index reweighing trick. Seeing that we are entering the rollover period, the most likely course of action that the funds will take to rebalance their holdings will be to simply lift their longs in the February contract and simply not rollover some of them into the April or June. I would expect pressure coming on gold from that angle to cease after the rollover period ends in a couple of weeks. Seeing that the low point in open interest readings in the Comex gold market was made back in the second week of December last year when gold was trading near the $740 level, those funds that began building positions near that time still have some profits left that they can actually catch even with this rebalancing act. Those that came in late and chased prices higher get to see red on their gold trades, which serves them right for being so dense. Hedge fund managers – are you tired of losing money trading gold against the bullion banks – then start your buy ins into weakness and begin scale down buy programs instead of your losing strategy of chasing price both higher and lower. And if you wish to further your chances, then use some of your assets to take delivery of physical gold bullion from the Comex warehouses and hold it off the market.

Crude oil is flirting with a breakdown of strong double bottom support near the $35 level on the continuous chart. The spread between the front month crude contract and the March makes buying crude difficult for futures players during a rollover period – that’s why so many are up and leaving. Natural gas made a new yearly low in today’ session – how do you like that given that intensely bitter cold gripping the heavy gas consuming region of the upper mid West.  There is just too much crude and too much natural gas out there given the current levels of demand. We really need some more of this very cold weather to put a serious dent in the supply side of things. Technically however, if and this is a big IF, crude can bounce from today’s low and close higher either today or tomorrow, short term traders will view it as a bottom signal. It is just too soon to say as of the hour I am writing this.

Speaking of spreads, I mentioned that I would be monitoring the spreads between the front month gold contract and some of the back months to keep you informed on that backwardation issue which surfaced about a month ago. So far the structure in the futures market has not shown any backwardation occurring although the forward spreads remain tight.

May I once again please remind some of our readers that I am a private trader only and not an investment advisor nor do I accept phone calls from people asking for my opinions on various stocks or commodity markets so that they may trade accordingly. I welcome emails with comments from readers but please do not pester me with timing buys and sells nor with recommendations on various equities.

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

January1409Gold1230pmCDT.jpg