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.
I, like yourself, am fed up with the gold bank’s ownership of the gold price via paper instruments. Therefore I respectfully ask those that can afford it to purchase as many Comex contracts as you can afford to take delivery of and do so.
Accept my assurance that I will take delivery of Comex 100 ounce bars on every delivery month from this day forward.
Jim Sinclair’s Commentary
Was this by omission or commission? Greenspan was neither asleep nor stupid. He knew exactly what he was doing.
Greenspan Slept as Off-Books Debt Escaped Scrutiny (Update1)
By Alan Katz and Ian Katz
Oct. 30 (Bloomberg) — As George Miller welcomed 60 bankers to the chandeliered Charlotte City Club one evening in September, the focus was on more than the recent bankruptcy of Lehman Brothers Holdings Inc. From their 31st-floor perch, members of the American Securitization Forum, which Miller leads, fretted about the future of their $10.7 trillion industry
The bankers were warned that a Financial Accounting Standards Board plan would force trillions of dollars back onto balance sheets, requiring cash reserves to soar. Their business of pooling and reselling assets had dropped 47 percent in the first six months of the year, and the industry couldn’t afford another setback.
The next day, Miller, 39, the forum’s executive director, took that message from North Carolina to a Senate hearing in Washington examining the buildup of off-balance-sheet assets. “There are great risks to the financial markets and to the economy of moving forward quickly with bad rules,” he said of FASB’s proposal.
Miller was trying to preserve an accounting rule for off- the-books assets that helped U.S. banks export toxic debt around the world. It is a loophole that Jack Reed, the Rhode Island Democrat who chairs the Senate securities subcommittee, said had contributed “to the severity of the current crisis.”
The damage to date: more than $680 billion dollars in losses and writedowns, about one-third of that by European banks.
There is absolutely no question in my mind that gold will trade at $1650 on or before (probably much before) January 14th, 2011.
Regardless of what financial TV or popular analysts claiming never to have made an error say, we are correct.
Stay the course. Do not let your guard down. Protect yourself as the most significant dislocation economically in world history for major nations is at our doorstep. In fact it is one foot through your door already. Are you prepared?
You ask why? Then read on!
There seems to be some degree of assumption that each action by the Fed brings the credit lockup closer to being corrected.
There are many challenges to this assumption.
Will banks use funds to patch up their pillaged balance sheet or actually start loaning in a progressive manner? The answer is balance sheet as they really have no alternative.
As in the case of AIG below, is any cash bailout enough to bail out losers? We need to remember that what OTC derivatives do not do to financial or any other entity, the drop in earnings will. Whatever is left over litigation will pick the bone clean of.
Regulators went from 12 to 1 leverage to 40 to 1 leverage where a 2-½% change in total asset value would bust financial institutions. The losses taken are not bookkeeping, but are hard and real.
The only thing bookkeeping did was allow these losses to be maintained in full value because they were OTC derivatives, not listed derivatives with a clearinghouse guarantee. Clearinghouses demand losers pay in and winner are paid out daily while there is no such facility for OTC derivatives. Because of no clearinghouse function, banks and other entities carried the declining value in OTC derivatives at full value at 40 to 1 leverage.
The bailout funds are simply putting a thumb into the leak in the dyke as more holes open up from earnings declines, slow business and serious litigation.
The TIC report is looking quite bad, indicating that dependence on non-US entities to finance a budget deficit that is about to go ballistic cannot be depended on.
All that we have seen is emergency action without limits to hold financial zombies from being discovered by the general public.
The US Fed is in fact holding up the entire world that is near and dear to them. One of the methods is through swaps, which are a form of OTC derivatives and just like the disease, are off balance sheet items.
There is no limit to what the US Fed and Treasury will do in the next few months. It will be discovered in the not too distant future that the US dollar has moved into critical oversupply. At that point expect to the see the US dollar drop like a stone and gold trading at $1200 and $1650.
The US dollars will see.72 again prior to .62 and .52.
The limiting factor to the present terminal financial condition under the Fed and Treasury bandage bailout is the US dollar. There is no escaping the event of publicly recognized dollar oversupply, the ineffectual nature of bailouts and the appearance of hyper-inflation in the midst of non-recovering business conditions.
Keep firmly in mind that retired Chairman Volcker has described this situation as “We have a failed financial structure.” He went on to describe the condition of the financial situation as “Code Blue.”
What you see now is only the beginning of a great economic drama, out of control and nowhere nears its end.
This is it. It is now!
Gold is the only entity that has the capacity of insuring your future buying power, maybe even more.
AIG Already Running Through Government Loans
By Mary Williams Walsh, | 30 Oct 2008 | 06:51 AM ET
The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analyst’s say at least part of the shortfall must have been there all along, hidden by irregular accounting.
“You don’t just suddenly lose $120 billion overnight,” said Donn Vickrey of Gradient Analytics, an independent securities research firm in Scottsdale, Ariz.
Mr. Vickrey says he believes AIG [AIG 1.64 0.09 (+5.81%) ] must have already accumulated tens of billions of dollars worth of losses by mid-September, when it came close to collapse and received an $85 billion emergency line of credit by the Fed. That loan was later supplemented by a $38 billion lending facility.
But losses on that scale do not show up in the company’s financial filings. Instead, AIG replenished its capital by issuing $20 billion in stock and debt in May and reassured investors that it had an ample cushion. It also said that it was making its accounting more precise.
Mr. Vickery and other analysts are examining the company’s disclosures for clues that the cushion was threadbare and that company officials knew they had major losses months before the bailout.
Taiwan Dumps Fannie, Freddie. And Uncle Sam?
By RANDALL W. FORSYTH
Despite bailout, GSE debt is eschewed by major foreign investor, and ally.
WHO LOST TAIWAN? After Mao drove the Nationalists off the Mainland in 1949, the cry went up among U.S. conservatives, “Who lost China?”
Now Washington might well worry about who lost Taiwan as a major investor in U.S. agency securities as the Republic of China has openly questioned their credit quality — even after the federal government has committed hundreds of billions of dollars to bail out mortgage giants Fannie Mae and Freddie Mac.
Beyond that, Washington might well worry that other nations also no longer view its agencies — and now, by extension, the very credit of the United States of America — beyond question.
Taiwan’s financial regulators reportedly have ordered that nation’s insurance companies to pare their holdings of the debt and mortgage-backed securities of Fannie Mae (ticker: FNM), Freddie Mac (FRE) and Ginnie Mae securities, according to a report on the Internet site of Asian Investor magazine.
Such an order would be a stunning rebuke to Washington, coming a little more than a month after the federal government effectively nationalized the mortgage giants. Fannie and Freddie last month were placed into conservatorships with the Treasury standing ready to inject up to $100 billion through purchases of preferred shares in the government sponsored enterprises.
I couldn’t help noticing the parallels in language between the following two items:
“Lower Federal tax revenues in the face of increased federal spending causes geometric, not arithmetic, rises in the US Federal Budget Deficit.”
–Jim’s Formula, September 1, 2006, Point 6.
“The financial rescue operation will force the federal government to borrow an unprecedented amount of money as the budget deficit climbs to record heights, a top Treasury Department official said Tuesday.” … “[Anthony Ryan, Treasury’s acting undersecretary for domestic finance] said the rising borrowing was occurring against the backdrop of a slowing economy.”
–Associated Press, M. Crutsinger, “Treasury Predicts Huge Government Borrowing Needs,” October 28, 2008.
Thanks for the heads up!
CIGA Richard B.
In one sense, an event like this is a compliment.
Can you imagine when the FRGCR appears out of some major meeting of the sages on international finance?
“World Will Struggle to Meet Oil Demand” is a front page headline in the Financial Times today.
The gist of the article is that the first authoritative public study on the biggest oil fields has been completed. It shows that production is falling much faster than had been thought. The International Energy Agency authored a report entitled “World Energy Output” which states that “the natural annual rate of output decline is 9.1%”. All I can say is WOW! This is much faster than anyone had thought. This means a lower long term supply of oil, and resulting higher long term prices for oil, coal and other energy sources.
Also today, soft commodities began a much overdue rally. We think food commodities and gold can continue to trend higher. Ending food stocks after the current harvest are at 34 year lows. The potential for food shortages and starvation in parts of the world remains high.
Add to this that not if but when Pakistan blows oil will rise $100 in 60 days from whatever price it is at that time.
This Bloomberg article explains why we have been harping on free trade for such a long time. Free trade is essential. Look at Iceland, when confidence in their banks evaporated, there was a currency collapse and inflation. Free trade became an impossibility due to a lack of trust in the currency. By the way, the Icelanders who owned gold, did great compared to everyone else, and they can now buy real estate companies and other assets cheaply in Iceland.
Credit `Tsunami’ Swamps Trade as Banks Curtail Loans (Update2)
2008-10-29 10:49:09.610 GMT
By Michael Janofsky, Mark Drajem and Alaric Nightingale
Oct. 29 (Bloomberg) — Richard Burnett’s lumber company had started loading wood onto ships heading for China. More was en route to the docks. It was all part of an order that would fill 100 40-foot cargo containers.
Then Burnett got a call from his buyer at Shanghai VIVA Wood Products Co. The deal was dead. He told Burnett, president of Cross Creek Sales LLC in Augusta, Georgia, he couldn’t get a letter of credit to guarantee payment for at least six months.
“It was like a spigot got cut off,” Burnett said, recounting the transaction that fell apart in July. The inability of buyers in China and Vietnam to get letters of credit has cost his company as much as $4 million this year, a third of projected revenue, forcing him to lay off 15 of 35 employees, he said.
Suppliers of oil, coal, grains and consumer products from Chicago to Mumbai are losing sales as the credit crisis spreads beyond financial institutions, and banks refuse financing or increase the fees for buyers. Coupled with declining demand, the credit squeeze is threatening international trade, one of the lone bright spots in the global economy.
This is not making a direct comparison, but instead speaks to my colleagues that believe the only way velocity of money increases is by a turn for the better in business activity. I will give them that this is the scenario wherein increased monetary stimulus transmits into inflation. What they are ignoring is another more likely scenario which is a significant depreciation of currency, in a short period of time, which we know can look like a long fishing line (straight down). This scenario produces much more intense inflation in the midst of a recession or depression.
The next possibility is significant fiscal stimulation directly on the heels of monetary stimulation which can result in some degree of either alternative listed above.
Global Crisis? This is the real crisis!
Sunday, October 26th, 2008
If you think that the current economic crisis is something that has never happened in history before, you may be wrong! After the collapse of the agriculture sector in Zimbabwe in 2000, the inflation in that country skyrocketed to 231 million percent a year! Just think about it – 231 000 000%! Unemployment went up to 80% and a third of country’s population left it.
Let`s now have a look at the photos that you may not be able to see anywhere else in the world.
Here is a boy getting change in 200 000 dollar notes!
Jim Sinclair’s Commentary
The article below discuses what could easily have been the quasi-Iceland event.
Be assured it will come to a significant country after a downgrade of their Federal debt.
Note in this article in one dynamics sentence they say Pakistan twice.
IMF bailout lifts Hungarian markets
By David Jolly
Wednesday, October 29, 2008
Hungarian stocks and the currency soared Wednesday after the country secured more than $25 billion in backing from global institutions led by the International Monetary Fund.
Dominique Strauss-Kahn, the IMF managing director said late Tuesday in Washington that a deal to provide Hungary with a €12.5 billion, or $15.7 billion, 17-month stand-by loan arrangement had been reached. The EU said it was ready to provide a loan of €6.5 billion or about $8.1 billion, while the World Bank agreed to provide €1.0 billion, or $1.3 billion.
“The Hungarian authorities have developed a comprehensive policy package that will bolster the economy’s near-term stability and improve its long-term growth potential,” Strauss-Kahn said in the statement. “At the same time it is designed to restore investor confidence and alleviate the stress experienced in recent weeks in the Hungarian financial markets.
The package must still go to the IMF’s executive board for approval in early November.
Jim Sinclair’s Commentary
From the viewpoint of a person on the executive committee of a NYSE brokerage firm (when that meant something) it is a little hard to believe that no one in this institution had any idea of some massive OTC derivative entered into by a trader.
Here is a neat idea. The rub is if that was done in the US, they would have to empty all maximum-security prisons and re-open Alcatraz in order to hold the OTC derivative gang. Maybe this will happen in a Democratic Administration. Stay tuned.
Those 29 year olds with hundreds of millions of dollars in their Greenwich, CT air conditioned indoor private tennis courts might consider it a good idea to check out to a non-extraditing country and instantly transfer their funds out of the US.
Caisse d’Epargne trader is held
French police have detained a trader for questioning over the loss of 751m euros (£601m) at savings bank Caisse d’Epargne, judicial officials say.
He was taken into custody as part of an inquiry into whether anyone was criminally liable for the loss, made as a result of complex derivative trades.
The bank initially put the loss at 600m euros, but has since revised it upward.
The bank’s top three executives have all resigned since the loss came to light earlier this month.
Chief executive Charles Milhaud stood down after saying he accepted full responsibility for the lost cash and is expected to leave without a pay-off.
Jim Sinclair’s Commentary
I will give you three guesses who and what are totally responsible for the destruction of mankind, not with a gun but with a scam. Subprime loans, my arse!
Gulf Bank head steps down after losses on derivatives
By Robin Wigglesworth in Abu Dhabi
Published: October 29 2008 02:00 | Last updated: October 29 2008 02:00
The crisis in Kuwait’s banking sector deepened yesterday when the chairman of Gulf Bank resigned over derivatives losses and Fitch Ratings downgraded the bank, the country’s second biggest lender.
Kutayba Al Ghanim replaced his brother, Bassam Al Ghanim, as chairman of Gulf Bank after depositors started to withdraw deposits from the stricken lender on Sunday – the first known bank-run in the region during the crisis – even though the Kuwaiti central bank pledged to support the bank and guarantee all deposits in the country.
Fitch Ratings downgraded Gulf Bank’s individual rating to D from B/C. While affirming the long-term issuer default rating of A+, the agency placed the bank under review for individual downgrades for a “serious lapse” in risk management and possible capital base erosion from “potentially large losses”.
Adding to the bank’s woes, Moody’s Investors Service yesterday placed Gulf Bank’s Aa3 long-term local and foreign-currency deposit ratings, and C bank financial-strength rating on review for possible downgrade. The Prime 1 short-term ratings were not affected, according to the credit rating agency.
“It is completely understandable. I wouldn’t trust them [the ratings agencies] if they hadn’t done this,” said a Gulf Bank spokesman.
Jim Sinclair`s Commentary
If required, the Fed will pay the many kinds of entities now at the begging bowl loan window to borrow money. Soon a major fiscal stimulation bill requiring more drafts on the Fed’s permanent overdraw facility will be initiated.
I still have one pressing question: Why did the Fed let Lehman go?
Fed Cuts Rate to 1% to Avert Prolonged Recession
By Craig Torres
Oct. 29 (Bloomberg) — The Federal Reserve cut its benchmark interest rate by half a percentage point to 1 percent, matching a half-century low, in an effort to avert the worst U.S. economic downturn in the postwar era.
“Downside risks to growth remain,” the Federal Open Market Committee said today in a statement in Washington. “Recent policy actions, including today’s rate reduction, coordinated interest-rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth.”
Central bankers worldwide are trying to revive credit and stop a self-reinforcing downturn in consumer spending and bank lending from triggering a global recession. Today’s decision follows the half-point reduction the Fed coordinated with the European Central Bank and four other central banks on Oct. 8. Borrowing costs were pared today in Norway and China.
The U.S. economy shrank at a 0.5 percent annual rate last quarter, the most since the 2001 recession, the Commerce Department’s report on gross domestic product will probably show tomorrow. Economists expect the slump to persist in the fourth quarter, according to the median estimate.
Jim Sinclair`s Commentary
If anyone has the potential of locking on to the real why of this collapse, OTC derivatives, it is Andrew Cuomo.
New York Demands Bonus Pay Data From Citigroup, Wells
By Karen Freifeld
Oct. 29 (Bloomberg) — New York Attorney General Andrew Cuomo sent letters to JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and six other banks that received taxpayer bailout funds, demanding bonus information for top management.
Cuomo said he wanted a “detailed accounting” of expected payments to top executives in the “upcoming bonus season,” including information on the expected bonus pool for this year, according to a copy of the letters sent today. He requested information on bonuses from before and after the banks knew they would receive funds from the Troubled Asset Relief Program.
Cuomo told the boards of directors he thought they were in the best position to respond to the requests because top management has a “significant interest in the size of the bonus pools.” He said he would have “grave concerns” if the expected bonus pool increased in any way as a result of the receipt of taxpayer funds.
“In this new era of corporate responsibility we are entering, boards of directors must step up to the plate and prevent wasteful expenditures of corporate funds on outsized executive bonuses and other unjustified compensation,” Cuomo wrote in the letter.
The other banks are Goldman Sachs Group Inc., Bank of New York Mellon Corp., Merrill Lynch and Co., Morgan Stanley, State Street Corp. and Bank of America Corp. Representatives of the nine firms declined to comment or couldn’t immediately be reached for comment.
Jim Sinclair`s Commentary
What will the US Treasury fail to guarantee? Lenders will never voluntarily give borrowers any break.
Treasury, FDIC Said to Craft Plan to Curb Foreclosure
By Alison Vekshin and Robert Schmidt
Oct. 29 (Bloomberg) — The U.S. Treasury and the Federal Deposit Insurance Corp. are considering a plan that may provide at least $500 billion in government guarantees for troubled mortgages, according to people familiar with the matter.
The program, which might help millions of homeowners refinance into affordable loans, would require lenders to restructure mortgages based on a borrower’s ability to repay. Under one option, the industry would keep lower monthly payments for five years before raising interest rates, the people said.
FDIC Chairman Sheila Bair discussed the program today at an international deposit insurers conference in Arlington, Virginia, without offering details. “A framework is needed to modify loans on a scale large enough to have a major impact,” Bair said.
Jim Sinclair`s Commentary
Recall our recent discussion on why gold is the only guarantee of your financial future saying that retirement programs are NO guarantee. This is prolific even if not yet admitted to.
Lockheed, Ryder Drain Cash as Crisis Hammers Pensions
By Pat Wechsler and Edmond Lococo
Oct. 29 (Bloomberg) — A trade group whose members include Lockheed Martin Corp., Dow Chemical Co. and General Motors Corp. is pressing Congress to help close a record $200 billion deficit in U.S. pensions created by this month’s global stock-market collapse.
The Committee on Investment of Employee Benefit Assets is kicking off a lobbying effort today to delay provisions of the Pension Protection Act that it says will force companies to drain cash flow to comply with funding rules set to take effect next year.
“This will be real money that companies will have to come up with,” said Judy Schub, managing director of the Bethesda, Maryland-based group, which represents 110 of the nation’s largest retirement plans holding almost half of U.S. assets. “The law will be forcing people to be taking money out of operations at the worst possible time.”
Aetna Inc., the third-largest U.S. health insurer, said today that pension expenses caused by stock market declines will lop 30 cents to 40 cents a share off next year’s operating earnings.
Ryder System Inc.’s pension contributions will “significantly increase in 2009” and force “cost management” to protect profit, Chief Executive Officer Gregory Swienton told a conference call Oct. 22. The Miami-based, truck-leasing company’s plan had $1.5 billion in assets in 2007 and was underfunded by $1 million, according to Standard & Poor’s Corp.
Jim Sinclair’s Commentary
For your information.
Turkey bombs PKK targets in N. Iraq
Tue Oct 28, 2008 9:30am EDT
ANKARA (Reuters) – Turkish warplanes bombed Kurdish separatist targets on Tuesday in northern Iraq with the backing of artillery fire from Turkey, the military said.
Violence has increased between Turkish security forces and the separatist rebels of the outlawed Kurdistan Workers Party (PKK) as tensions have risen in predominantly Kurdish southeastern Turkey.
The PKK uses northern Iraq as a base to launch attacks on targets inside Turkey.
The military said it had successfully hit the targets and that planes had returned safely to their Turkish bases. No civilians had been targeted or hit in the raid, it said.
Turkey has stepped up its military response since an attack from the PKK which killed 17 Turkish soldiers this month, and the parliament renewed a mandate earlier this month to allow military raids on separatists in northern Iraq.
Turkey to face gas shortage if Iranian pipeline delayed
BOTAS, the state-run Petroleum Pipeline Corporation, has warned that the country could face a serious gas shortage at the beginning of 2009 if the pipeline carrying Iranian natural gas to Turkey is not completed on time, Referans daily reported on Monday.
Turkey, heavily dependent on foreign energy supplies, has faced shortage risks posed mainly by Iran’s decision to cut the flow of natural gas to Turkey in previous years. Turkish and Iranian officials agreed to build an additional pipeline to secure the flow in order to avoid a similar situation.
Any halt to the flow of gas is also a matter of concern for the production of electricity, as more than 50 percent of the country’s electricity is produced by natural gas.
Gas flow problems derive from the limited capacity of the existing pipeline, where gas loses compression while passing through Iranian cities on the Tabriz-Urumiyah line.
The amount of gas Turkey received from Iran fell to a level of 4-5 million cubic meters per day, from the expected 18-29 million cubic meters, forcing Turkey to compensate the loss by increasing Russian gas imports.
The following is courtesy of CIGA JB Slear from Fort Wealth Trading Co.