Posted at 10:19 PM (CST) by & filed under In The News.

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Dear CIGAs,

1. The real number is in excess of US $1.4 quadrillion notional value. The method of valuation was changed to hold to maturity, a cartoon.

2. Notional value becomes full value upon bankruptcy.

3. It is already melting down.

4. The chances of this happening soon are reasonably good as the real why of this ongoing disaster is coming into focus.

Derivatives: A $700+ Trillion Bubble Waiting to Burst
April 19, 2009
J. S. Kim

In the past three years, while banks all over the world and Wall Street were imploding, while some $40-$50 trillion of capital was being destroyed in global stock markets, one financial market kept growing. That market is the financial derivatives market.

According to the Bank for International Settlements [BIS], the global Over the Counter [OTC] derivatives market has grown almost 65% from $414.8 trillion in December, 2006 to $683.7 trillion in June of 2008. On the BIS’s own website, there are no updated figures for the notional derivatives market since June 2008, so we can likely assume, with some margin of safety, that this market has now grown to more than $700 trillion. Comparatively speaking, the total market cap of all major global stock markets is approximately $30 trillion.

Before I discuss how financial products could grow more than 65% during a time period when financial companies were imploding all over the world, let’s review the definition of a derivative, because this will explain how this market of financial products keeps becoming more valuable at a time when the value of many capital assets are sinking like a rock in an ocean.

According to Wikipedia:

Derivatives are financial contracts, or financial instruments, whose values are derived from the value of something else (known as the underlying). The underlying value on which a derivative is based can be an asset (e.g., commodities, equities (stocks), residential mortgages, commercial real estate, loans, bonds), an index (e.g., interest rates, exchange rates, stock market indices, consumer price index [CPI] — see inflation derivatives), weather conditions, or other items. Credit derivatives are based on loans, bonds or other forms of credit. The main types of derivatives are forwards, futures, options, and swaps.

Because the value of a derivative is contingent on the value of the underlying, the notional value of derivatives is recorded off the balance sheet of an institution, although the market value of derivatives is recorded on the balance sheet. Over-the-counter [OTC] derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. The OTC derivative market is the largest market for derivatives, and is largely unregulated with respect to disclosure of information between the parties, since the OTC market is made up of banks and other highly sophisticated parties, such as hedge funds…Because OTC derivatives are not traded on an exchange, there is no central counterparty. Therefore, they are subject to counterparty risk, like an ordinary contract, since each counterparty relies on the other to perform.


Jim Sinclair’s Commentary

This period in history will be titled “The Death of the Dollar.”

With that the power of Asia rises.

China seeks oversight of reserve currency issuers
China sovereign wealth fund plans more investments in Europe: report
By Lisa Twaronite, MarketWatch
Last update: 5:28 p.m. EDT April 18, 2009

SAN FRANCISCO (MarketWatch) — Chinese Premier Wen Jiabao called for more surveillance of countries that issue major reserve currencies, according to published reports Saturday.

Wen did not specify the United States in his remarks at the Boao Forum for Asia in China’s Hainan Province. But Chinese officials have recently expressed their concern about their country’s investments in dollar-denominated assets.

“We should advance reform of the international financial system, increase the representation and voice of emerging markets and developing countries, strengthen surveillance of the macro-economic policies of major reserve currency issuing economies, and develop a more diversified international monetary system,” Wen said, according to China’s official Xinhua news agency.

Wen told the conference that China’s economy was faring “better than expected.” China said last week that its economy grew at an annual rate of 6.1% in the first quarter, a slowdown from 6.8% in the fourth quarter of 2008.

Wen said China would seek to expand currency swap agreements that are seen as a step toward eventually making the yuan more of a global reserve asset.


Jim Sinclair’s Commentary

Bloomberg’s revealing of the tenuous position of the $USD is attention catching.

The Money Bunnies would faint stone cold if that came from Bloomberg TV.

There is no way dollar support will survive 2009. It simply will NOT!

China wants control over the economic monetary acts of a reserve currency nation (posted for you today). This is a direct dollar challenge if you have the experience to hear.

Washington in general could be dense and egotistic enough not to know what is coming down the pike.

“Geithner’s climb-down from the manipulator charge is about pragmatism. He is aware of the fragility of international support for the dollar.”

Geithner’s Biggest Problem Is Dollar, Not China: William Pesek
Commentary by William Pesek

April 17 (Bloomberg) — It’s a bit rich for U.S. politicians to berate Treasury Secretary Timothy Geithner for not labeling China as a currency manipulator.

Perhaps Senator Lindsey Graham, a South Carolina Republican, hasn’t seen a newspaper in the last 12 months. With near-zero interest rates, the likely issuance of trillions of dollars of government debt and massive taxpayer-funded bailouts, the U.S. will soon make China look like a manipulation piker.

Memo to Graham and his ilk: Your economy has lost any moral high ground as it drags the world down with it. That will be even truer as the dollar eventually pays the price for ultra- loose monetary and fiscal policies. And it will.

Sure, China manipulates the yuan. Everyone knows that, including Geithner; he said so during his January confirmation hearing. It’s also widely recognized that a stable yuan is propping up the U.S. financial system. Its $2 trillion of reserves are a direct result of China manipulating the yuan.

Geithner’s climb-down from the manipulator charge is about pragmatism. He is aware of the fragility of international support for the dollar.


Jim Sinclair’s Commentary

Of all our international problems this is the most serious.

It holds the potential of upsetting the social order as every worker depends on their retirement funds, many of whom have been taken down by the OTC derivative massacre.

Having read the warning letters required to be sent to the pension fund contributors, I can assure you they do not bare the facts.

Potential pensioners are clueless.

Are pensions just a waste of money? In a word: yes
The Observer, Sunday 19 April 2009

Having paid into a private pension for the last 10 years, my answer to your question (Are pensions a waste of money?, Cash, last week) is yes.

The value of my fund is about 30% less than the amount I’ve paid in over the years. I’m also paying into an occupational pension, though only because my employer adds 6%, but, like the private pension, this has plummeted in value.

Forget about the tax-free capital gains claimed by Tom McPhail – the stockmarket has gone nowhere for 10 years. Only the prospect of dividends has given any hope to pension savers. But Gordon Brown has been taxing these since 1997.

Only fund managers make money out of pensions. They take annual fees regardless of performance. This also means you have to keep paying into a pension just to stand still – stop and its value falls each year thanks to charges.

Phil Gooch, by email

Are pensions a waste of money? In my opinion, they are. The big advantage for a man, let’s call him Mr B, investing in an Isa instead is that it is then his money to do with as he pleases. If Mr B dies at 80 there could be money remaining that could be left to his partner or children.

It is possible to take a quarter of a pension pot as a lump sum , but the rest has to be given away to strangers in a pension company. If you pay tax at 40%, do not wish to leave an inheritance, and plan to retire early, then maybe a pension is for you. But not for me.


Jim Sinclair’s Commentary

If you think this is unusual then you never heard the term, “Pay to Play,” common in the financial industry.

As pension funds financially implode watch the fall out of “Pay to Play.”

In State Pension Inquiry, a Scandal Snowballs
Published: April 17, 2009

The inquiry into corruption at the New York State pension fund started simply enough. Alan G. Hevesi, the former comptroller, was accused of using state workers as chauffeurs for his ailing wife.

But by the time Mr. Hevesi resigned his office in late 2006, investigators for the Albany County district attorney’s office were examining a more troubling problem: allegations that Mr. Hevesi’s associates had sold access to the state’s $122 billion pension fund, using one of the world’s largest pools of assets to reward friends, pay back political favors and reap millions of dollars in cash rewards for themselves.

“We knew this was not going to be a case we could handle ourselves in Albany County,” recalled P. David Soares, the Albany County district attorney.

In 2007, Attorney General Andrew M. Cuomo’s office and then the Securities and Exchange Commission took over the inquiry, which has ballooned into a sprawling investigation involving some of the most prominent players in New York’s political and financial worlds.

Hundreds of investment firms have been subpoenaed. Three people have been criminally charged and another has pleaded guilty to a felony. And the scandal has grabbed the attention of Wall Street, as members of the investment establishment’s top tier now face scrutiny.


Jim Sinclair’s Commentary

We spoke of Jim’s Formula as a key to the dollar.

Here is your confirmation that the 2006 Formula did give you an outline of what lays ahead, how it would occur and how it would eventually take the dollar down.

The Formula will play out as the most significant of all criterion for this chapter that history will define as “The Death of the Dollar.”

Just think if someone had listened to my warnings from 2000 to the present on OTC derivatives.

Just think if people had given the Formula the credit it deserves.

Even now evil spirited people would rather deride than be advised.

They could still have gotten pig rich without destroying the world in the process.

The destruction has been done. Now even Taleb cannot help them.

You can protect yourself. You must protect yourself from perpetual spin.

Study the lessons below, please.

GEAB N°34 is available! Summer 2009: The international monetary system’s breakdown is underway

In this issue of the GEAB, our researchers anticipate the different forms a US default will take at the end of summer 2009, a US default which can no longer be concealed concealable from this April (most taxes are collected in April in the US) onward (10). The perspective of a US default this summer is becoming clearer as public debt is now completely out of control with skyrocketing expenses (+41%) and collapsing tax revenues (-28%), as LEAP/E2020 anticipated more than a year ago. In March 2009 alone, the federal deficit has nearly reached USD 200-billion (way above the most pessimistic forecasts), i.e. a little less than half of the deficit recorded for the entire year 2008 (a record high year) (11). The same trend can be observed at every level of the country’s public organization: federal state, federated states (12), counties, towns (13), everywhere tax revenues are vanishing, suffocating the whole country with spiraling debts that no one can control anymore (not even Washington).

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 1,400-billion worth of USD-denominated debt (1)? If we believe US leaders and their scores of media experts, China is only dreaming of remaining a prisoner, and even of intensifying the severity of its prison conditions by buying always more US T-Bonds and Dollars (2).

In fact, everyone knows what prisoners dream of? They dream of escaping of course, of getting out of prison. LEAP/E2020 has therefore no doubt that Beijing is now (3) constantly striving to find the means of disposing of, as early as possible, the mountain of « toxic » assets which US Treasuries and Dollars have become, keeping the wealth of 1,300 billion Chinese citizens (4) prisoner. In this issue of the GEAB (N°34), our team describes the “tunnels and galleries” Beijing has secretively begun to dig in the global financial and economic system in order to escape the « dollar trap » by the end of summer 2009. Once the US has defaulted on its debt, it will be time for the « everyman for himself » rule to prevail in the international system, in line with the final statement of the London G20 Summit which reads as a « chronicle of a geopolitical dislocation », as explained by LEAP/E2020 in this issue of the Global Europe Anticipation Bulletin.


Jim Sinclair’s Commentary

This is coming fast and NOW!

Markets are in total denial.

Pakistan in great danger, says Musharraf

Islamabad: The former Pakistani President, Pervez Musharraf, said on Sunday “The country is in great danger,” and added that the people should not get bogged down by minor issues and focus on bigger challenges.

“Pervez Musharraf said that the country was in great danger and advised all to shun looking into the past,” the News International reported.

Before leaving for Saudi Arabia, General (retired) Musharraf urged upon the nation to focus on the current myriad challenges. The people, instead of bogging down in minor issues, should think about the future of Pakistan, Pakistan News quoted him as saying.

Talking to mediapersons at Islamabad airport, General Musharraf said the people playing with the Lal Masjid issue were enemies of the country.

“Only 94 persons were killed in Lal Masjid, who were terrorists. If any action is initiated against me, I will respond to it,” he said.


Islamist Leader in Pakistan Reveals Troubling Plans
By Pamela Constable
Washington Post Foreign Service
Sunday, April 19, 2009; 4:52 PM

ISLAMABAD, April 19 — A potentially troubling era dawned Sunday in Pakistan’s Swat Valley, where a top Islamist militant leader, emboldened by a peace agreement with the federal government, laid out an ambitious plan to bring a “complete Islamic system” to the surrounding northwest region and the entire country.

Speaking to thousands of followers in an address aired live from Swat on national news channels, cleric Sufi Mohammed bluntly defied the constitution and federal judiciary, saying he would not allow any appeals to state courts under the Islamic Sharia law system that will now prevail there as a result of the peace accord signed by the president Tuesday.

“The Koran says that supporting an infidel system is a great sin,” Mohammed said, referring to Pakistan’s modern democratic institutions. He declared that in Swat, home to 1.5 million people, all “un-Islamic laws and customs will be abolished,” and he suggested that the official imprimatur on the agreement would now pave the way for Sharia to be installed in other areas.

Mohammed’s dramatic speech echoed a rousing sermon in Islamabad Friday by another radical cleric, Maulana Abdul Aziz, who appeared at the Red Mosque in the capital after nearly two years in detention and urged several thousand chanting followers to launch a crusade for Sharia law nationwide.


Jim Sinclair’s Commentary

This is the World’s biggest problem and a major point of upset for markets.

It has gone hot and is getting critical. Money cannot stop this.

Diplomacy equates to money and cannot stop this.

Fears for Pakistan grow as Taliban make gains
Sun Apr 19, 2009 8:38am BST
By Robert Birsel – Analysis

ISLAMABAD (Reuters) – Pakistan has repeatedly vowed action to stop militants but analysts say denial and dithering and a seething resentment of the United States among the Pakistani people have stymied effective policy.

Escalating violence by militants and the consolidation of their grip in some places, and infiltration into others, have raised fears about the spread of Taliban influence.

Nuclear-armed Pakistan falling under the sway of al Qaeda-linked militants is a nightmare scenario for the United States and Pakistan’s neighbors, and would doom U.S. efforts to stabilize Afghanistan.

“There’s a great sense of angst, a sense of unraveling,” said Adil Najam, professor of international relations at Boston University.

“It seems that everyone has lost control, including the military, of where things are going. I don’t think they’ve given up the fight, it’s just they don’t seem to know what they can do,” he said.

President Asif Ali Zardari secured more than $5 billion in aid last Friday after telling allies and aid donors in Tokyo he would step up the fight against militants.


Posted at 9:00 PM (CST) by & filed under Jim's Mailbox.

My Dear Friends,

No one takes pleasure in seeing what has been the great now struggling to remain above water. The most patriotic thing we can do is to recognize what it is and deal with it. That is why I have been trying so hard to transfer whatever knowledge I have been exposed to in my 50 year career in finance to you.

This market-wise is simply an interlude in which your guard must be kept up.

Dan keeps you posted on what is happening now even if it is not what we would wish to occur.

My job is to keep you focused on the big picture and what it means to our future.

This period will be seen as the Death of the Dollar. This statement would have been ludicrous until only a short while ago.

Be careful. Nothing is fixed, it is just more spin.

Respectfully yours,

Dear Jim,

This is realism at last. From the Christian Science Monitor.

Dean Harry

America: a superpower no more
Decline is occurring more rapidly than we think. It’s time to embrace a new agenda.
By Walter Rodgers
from the April 8, 2009 edition

Oakton, Va. – Two American icons, General Electric and Berkshire Hathaway, lost their triple-A credit ratings. Then China, America’s largest creditor, called for a new global currency to replace the dollar just weeks after it demanded Washington guarantee the safety of Beijing’s nearly $1 trillion debt holdings. And that was just in March.

These events are the latest warnings that our world is changing far more rapidly and profoundly than we – or our politicians – will admit. America’s own triple-A rating, its superpower status, is being downgraded as rapidly as its economy.

President Obama’s recent acknowledgement that the US is not winning in Afghanistan is but the most obvious recognition of this jarring new reality. What was the president telling Americans? As Milton Bearden, a former top CIA analyst on Afghanistan, recently put it, “If you aren’t winning, you’re losing.”

The global landscape is littered with evidence that America’s superpower status is fraying.

Nuclear-armed Pakistan – arguably the world’s most dangerous country – is falling apart, despite billions in US aid and support.

In Iraq, despite efforts in Washington to make “the surge” appear to be a stunning US victory, analysts most familiar with the region have already declared Iran the strategic winner of the Bush administration’s war against Saddam Hussein. The Iraq war has greatly empowered Iran, nurturing a new regional superpower that now seems likely to be the major architect of the new Iraq.

Sadly, what was forgotten amid the Bush-era hubris was that America’s edge always has been as much moral and economic as military. Officially sanctioned torture, the Abu Ghraib scandal, US invasion of a sovereign country without provocation, along with foolishly allowing radical Islamists to successfully portray the US as the enemy of the world’s 1.5 billion Muslims, shattered whatever moral edge America enjoyed before 2003.



There is not much in terms of eye candy this week.

Interesting movement in SF and Silver.

SF is already bullish.

Silver is nothing, yet.

The US dollar index has yet to flip flows as price rallies. This could have changed after Tuesday, so we’ll have to wait until next week. We are getting close (1-2 weeks)


Click charts to enlarge




Dear Jim,

Can the world stand this much honesty?

This is the real truth and it’s amazing Stiglitz has enough guts to say it.

His credentials are topnotch.
This will rock the White House and wise up the population.

Dean Harry

Dear Jim,

“Stiglitz says White House Ties to Wall Street Doom Bank Rescue.”

Truer words were never spoken. It looks like Wall Street has got the support to get a profitable bailout, sticking the taxpayers with the bill.

They are going to be allowed to go on with the wildly irrational creation and speculation in OTC derivatives, which all real experts explain are usually so complicated no one understands them. Thus the odds grow that if we can get out of the current collapse, it will be followed by another bubble caused by the same OTC DERIVATIVES that you have warned about for so long, and eventually another collapse.

Each collapse increases the debt burden on the taxpayer and is met with the creation of more dollars. In my opinion, the final result of this insanity will be much higher gold prices.

Respectfully yours,

Monty Guild

Stiglitz Says Ties to Wall Street Doom Bank Rescue (Update1)
By Michael McKee and Matthew Benjamin

April 17 (Bloomberg) — The Obama administration’s bank- rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.

“All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview yesterday. The people who designed the plans are “either in the pocket of the banks or they’re incompetent.”

The Troubled Asset Relief Program, or TARP, isn’t large enough to recapitalize the banking system, and the administration hasn’t been direct in addressing that shortfall, he said. Stiglitz said there are conflicts of interest at the White House because some of Obama’s advisers have close ties to Wall Street.

“We don’t have enough money, they don’t want to go back to Congress, and they don’t want to do it in an open way and they don’t want to get control” of the banks, a set of constraints that will guarantee failure, Stiglitz said.

The return to taxpayers from the TARP is as low as 25 cents on the dollar, he said. “The bank restructuring has been an absolute mess.”

Rather than continually buying small stakes in banks, the government should put weaker banks through a receivership where the shareholders of the banks are wiped out and the bondholders become the shareholders, using taxpayer money to keep the institutions functioning, he said.



U.S. Dollar and Gold: the Bear market reaction is over.

Now we wait for shorting into strength (see 05-06 yellow spot shadow). This will mark the end of the third drive and reaction in gold.

COT US Dollar

UDX 05-06

UDX 08-09


Jim Sinclair’s Commentary

Where gold is concerned when the bottom is found is more important than at what price as gold will trade at $1650 and better. If you do not wish to accept this here then try Dean Harry, Alf or Armstrong.

Dear Mr. Sinclair,

On days like the last few, I look at my NO WHINING sticker (see attached) and remember to see the forest for the trees.

Thank you for all you do for the community.

Best regards,
CIGA Annette


Posted at 8:03 PM (CST) by & filed under In The News.

Dear CIGAs,

For those who understand, when under attack emulate the courage, dedication, determination and willpower of Jean de La Valette.

Then you welcome the great opportunity to perform for those who depend on you.

Jim Sinclair’s Commentary

The FASB boost spoken about today’s financials was an earnings impact of $500 million that would show up in trading profits as a result of mark ups of OTC derivatives permanently and temporarily impaired (whatever that means).

Jim Sinclair’s Commentary

This is an interlude, not a bottom. Please keep your guard up.

Bernanke Says Crisis Damage Likely to Be Long-Lasting
By Craig Torres

April 17 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke said the collapse of U.S. lending will probably cause “long-lasting” damage to home prices, household wealth and borrowers’ credit scores.

“One would be forgiven for concluding that the assumed benefits of financial innovation are not all they were cracked up to be,” the Fed chairman said today in a speech at the central bank’s community affairs conference in Washington. “The damage from this turn in the credit cycle — in terms of lost wealth, lost homes, and blemished credit histories — is likely to be long-lasting.”

The U.S. central bank has cut the benchmark lending rate to as low as zero and taken unprecedented steps to stem the credit crisis through direct support of consumer finance and mortgage lending. The Fed plans to purchase as much as $1.25 trillion in agency mortgage-backed securities this year to support the housing market and is providing financing for securities backed by loans to consumers and small businesses.

Bernanke and the Federal Reserve Board approved rules last July to toughen restrictions on mortgages, banning high-cost loans to borrowers with no verified income or assets and curbing penalties for repaying a loan early. The action came after members of Congress and other regulators urged the Fed to use its authority to prevent abusive lending.

‘Onerous’ Restrictions

“We should not attempt to impose restrictions on credit providers so onerous that they prevent the development of new products and services in the future,” Bernanke said. Regulations should ensure “innovations are sufficiently transparent and understandable to allow consumer choice to drive good market outcomes.”


Jim Sinclair’s Commentary

I am sure you heeded warnings here concerning your credit union.

Economic heat encroaching, credit unions seek U.S. help
By Mike Freeman (Contact) Union-Tribune Staff Writer
2:00 a.m. April 17, 2009

Through much of the ongoing financial crisis, credit unions have sidestepped the turmoil swamping the banking industry by sticking to their knitting of making mortgage, auto, consumer and some business loans at good rates to members.

Credit union trade groups like to call the industry a “movement” rather than a business. They can’t raise funds selling stock. They grow capital by keeping the earnings from the loans they make. They’re loath to take on too much risk.

“They’re set up as cooperatives, so they don’t have the pressure from shareholders for returns like you might have with a bank,” said David Ely, a banking professor at San Diego State University. “There is a mission to serve their members and do right by them in setting loan rates and deposit rates.”

But as the recession has deepened and layoffs have mounted, even conservative credit unions have been unable to emerge unscathed.

Amid stiff economic head winds from the housing collapse and mounting job losses that have buffeted financial institutions nationwide, only three of the 11 largest credit unions in San Diego County – Mission Federal, Pacific Marine and San Diego County Credit Union – made money in 2008.


Jim Sinclair’s Commentary

Please consider what this means in the big picture.

It is totally ignored in market terms.

I believe that Pakistan’s transition to a Taliban State has the potential to be the market driver from 2010-2012.

Warning that Pakistan is in danger of collapse within months
Paul McGeough
April 13, 2009

PAKISTAN could collapse within months, one of the more influential counter-insurgency voices in Washington says.

The warning comes as the US scrambles to redeploy its military forces and diplomats in an attempt to stem rising violence and anarchy in Afghanistan and Pakistan.

“We have to face the fact that if Pakistan collapses it will dwarf anything we have seen so far in whatever we’re calling the war on terror now,” said David Kilcullen, a former Australian Army officer who was a specialist adviser for the Bush administration and is now a consultant to the Obama White House.

“You just can’t say that you’re not going to worry about al-Qaeda taking control of Pakistan and its nukes,” he said.

As the US implements a new strategy in Central Asia so comprehensive that some analysts now dub the cross-border conflict “Obama’s war”, Dr Kilcullen said time was running out for international efforts to pull both countries back from the brink.


Pakistan in danger of fracturing into Islamist fiefdom’: report
Updated at: 1240 PST,  Friday, April 17, 2009
WASHINGTON: With extremist elements gaining ground every passing day, Pakistan is in an imminent danger of disintegrating into a fiefdom controlled by Islamist warlords, having “disastrous” implications, a media report has said.

“It’s a disaster in the making on the scale of the Iranian revolution,” an unnamed intelligence official with long experience in Pakistan was quoted as saying by the newspaper.

There is little hope to prevent nuclear-armed Pakistan from disintegrating into a fiefdom controlled by Islamist warlords and terrorists, who would then pose a far greater threat to the US than those in Afghanistan, intelligence officials keeping a close watch on the situation in the region, told the paper.

They said Pakistan’s government is in the danger of being overrun by Islamic militants and the development of such a situation could be dangerous not only for the US but also for the entire region.

“Pakistan has 173 million people and 100 nuclear weapons, an army which is bigger than American army, and the headquarters of al-Qaida sitting in two-thirds of the country which the government does not control,” David Kilcullen, a counterinsurgency consultant to the Obama administration was quoted as saying.


Taliban Exploit Class Rifts in Pakistan
Published: April 16, 2009


Naveed Ali/Associated Press
Around 3,000 people gathered for a rally in the Swat Valley of Pakistan on April 10 in support of the bill paving way for the implementation of Islamic law there.

PESHAWAR, Pakistan — The Taliban have advanced deeper into Pakistan by engineering a class revolt that exploits profound fissures between a small group of wealthy landlords and their landless tenants, according to government officials and analysts here.

The strategy cleared a path to power for the Taliban in the Swat Valley, where the government allowed Islamic law to be imposed this week, and it carries broad dangers for the rest of Pakistan, particularly the militants’ main goal, the populous heartland of Punjab Province.

In Swat, accounts from those who have fled now make clear that the Taliban seized control by pushing out about four dozen landlords who held the most power.

To do so, the militants organized peasants into armed gangs that became their shock troops, the residents, government officials and analysts said.

The approach allowed the Taliban to offer economic spoils to people frustrated with lax and corrupt government even as the militants imposed a strict form of Islam through terror and intimidation.


Jim Sinclair’s Commentary

Retirement fund for the present Pakistani government.

Donors pledge $5bn for Pakistan

International donors have pledged more than $5bn (£3bn) to help stabilise Pakistan, at an aid conference co-hosted by Japan and the World Bank.

Nearly 30 countries and international organisations met in Tokyo to offer financial support to enable Pakistan to fight off Islamic extremism.

The United States and Japan each pledged $1bn (£671m).

In return, President Asif Ali Zardari said Pakistan would do its utmost to defeat militants in its border areas.

Pakistan’s stability is being threatened by al-Qaeda and Taleban forces in the lawless northwestern areas neighbouring Afghanistan.


Jim Sinclair’s Commentary

Where have these experts been for the past four years?

Experts predict Pakistan’s collapse
McClatchy Newspapers

WASHINGTON | A growing number of U.S. intelligence, defense and diplomatic officials have concluded that there’s little hope of preventing nuclear-armed Pakistan from disintegrating into fiefdoms controlled by Islamist warlords and terrorists.

“It’s a disaster in the making on the scale of the Iranian revolution,” said a U.S. intelligence official with long experience in Pakistan who requested anonymity.

Pakistan’s fragmentation into warlord-run fiefdoms that host al-Qaida and other terrorist groups would have grave implications for the security of its nuclear arsenal; for the U.S.-led effort to pacify Afghanistan; and for the security of India, the nearby oil-rich Persian Gulf and Central Asia, the U.S. and its allies.

“Pakistan has 173 million people and 100 nuclear weapons, an army which is bigger than the American Army, and the headquarters of al-Qaida sitting in two-thirds of the country which the government does not control,” said David Kilcullen, a counterinsurgency consultant to the Obama administration.

“Pakistan isn’t Afghanistan, a backward, isolated, landlocked place that outsiders get interested in about once a century,” agreed the U.S. intelligence official. “It’s a developed state.”


Jim Sinclair’s Commentary

Going forward derivatives can be written to trade on exchanges. Going backward no derivative, because there is no standards, can be listed on any exchange.

CDS dealer trade volumes steady vs year ago-Markit
04.17.09, 11:49 AM EDT
Thomson Reuters

LONDON, April 17 (Reuters) – Dealers in credit derivatives averaged about the same number of trades in March as they did a year ago, Markit data showed, even after months of upheaval forced some dealers and investors out of the market.

Average monthly credit defaults swap (CDS) transactions per dealer amounted to more than 25,000 in March 2009, versus slightly less than 25,000 in March 2008, according to graphs in a quarterly report published by Markit on its Web site on Friday.

The number of dealers, however, decreased to 16 from 18 in 2008 after Bear Stearns and Lehman Brothers(LEHMQ) went out of business. The adjusted volume, therefore, would be 12 percent lower in 2009 than the amounts shown on the charts, or around 22,000 deals per dealer.

The unadjusted figure reached a peak in November 2008 at around 30,000 transactions, which after being adjusted would be between 26,000 and 27,000, or about equal to a previous record in August 2007.

Meanwhile, the backlog in CDS trade confirmations aged over 30 days fell to a new low of between 0.1 and 0.2 business days outstanding in March, the chart showed.

That is down sharply from 1 business day in March 2008.


Posted at 10:30 AM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Increased selling pressure hit the gold market during today’s session as the broken neckline support level that had been serving to hold prices from moving lower finally gave way overnight. While the equity markets were not soaring higher, neither were they giving up much of their gains from yesterday. That too served to undercut safe haven flows in the yellow metal. The last straw was the ETF, GLD, finally showed some movement in its reported holdings yesterday – unfortunately that movement was a drop of 8 tons – the first such movement in nearly three weeks. Adding insult to injury, more Dollar strength left the bulls little to reinforce their side today.

Investment demand has been the driver of gold prices recently with the sharp climb in the ETF holdings serving to more than offset any slowdown in jewelry demand and increase of scrap sales. That investment demand, like it or not, is gauged by the industry by monitoring these reported gold holdings. Yesterday I mentioned whether or not the recent buyers of GLD were “sticky”; they had not been selling while gold at the Comex was moving lower in price. The drop in reported holdings is therefore worrisome although one day a trend does not make (I sound like Master Yoda speaking here).

Gold has now moved down the test the former swing low made in early April. Bulls must hold prices here to avoid a sharp drop down to $852 – $850. Watching the price action by the minute today, it is evident that the bears are working hard to breach that level and get to the sell stops sitting just under that level. Longs are valiantly attempting to prevent that from occurring  but they need help from some other outside source (much stronger crude, a change in the Euro-Yen cross, or sharply lower stocks) to bolster their line of defense. The problem is that judging from the open interest readings, not only are some longs running, but new sellers are now coming into the market with several funds taking sizeable short positions. That 100 day moving average is keenly watched by technically oriented trading funds and now that it has been breached, their algorithms have them selling. It will take some strong value based buying early next week to keep the technical picture from breaking down further. Bulls need to push prices back above $880 pronto like.

The HUI and the XAU look to be targeting the early March lows.

Safe haven flows into bonds are also seemingly coming to an abrupt halt with prices moving to a one month low. They still remain trapped within the confines of that huge price range made the day of the Fed’s announcement of quantitative easing but they are well off the spike high that occurred back then and less than two points away from that day’s low. A break of that level would have profound implications for the future course of interest rates. I find it telling that in spite of widely publicized and much heralded Federal Reserve buying of longer dated Treasuries, prices cannot move higher. It is obvious that a huge supply is lurking above the market with traders apparently deeply concerned how much of this mammoth amount of new debt can be sold.  What should be particularly troubling, is that we have just now scratched the surface of this new indebtedness, that has now effectively enslaved not only the current generation of Americans, but your children and their children.

The CCI is showing some strength today with the move higher in the energies supporting it while weakness in the metals is undercutting it.

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


Posted at 11:39 PM (CST) by & filed under General Editorial.

Dear Extended Family,

My job in this chapter of my life is to protect and serve.

There is no way that I am leaving you.

I have dedicated all I have to my corporate interests, without reservation, and all I am to you, without reservation.

I have no concern that the challenges of a totally rotten world and deeply mean spirited people will tire me.

I have never felt stronger nor had more clarity in my life than right now, this instant.

You want a VOW, you can take all the above.

Goodnight for today.

Respectfully yours,

Posted at 10:41 PM (CST) by & filed under General Editorial.

Dear Friends:

It is either April 19th to the 21st or in June, but it is coming.

Here is Alf on the numbers.

I recently completed the same mathematics that helped me so much in 1980 to determine the price that would be required to balance the international balance sheet of the U.S.

Balancing the international balance sheet is gold’s mission in times of crisis.

I recently did the math again and was sadly shocked to see what the price of gold would have to be to balance the international balance sheet of the USA today. That price for gold is more than twice Alf’s projected maximum gold price.

My compliments go to Alf for his work which has been spot on for a good deal of time.

All our tools are a crystal ball of sorts, a kind not having 100% input from the adopted discipline. Certainly Alf’s work involves more than simple technical analysis talent. It is quite rare for two Gann guys ever to see the same thing in an axiom of TA.. You might recall it was Alf who correctly called the uranium market.

None of us get it right all the time. For the speculator, you are only as good as your last call. I think Alf has it nailed. Bravo to him.

Respectfully yours,

Elliott Wave Gold Update 23
By Alf Field

As this is going to be the last of these Updates, it is appropriate to review the reasons for writing this series of articles on Elliott Wave and the gold price. This will involve revealing a lot of personal detail and also unveiling an extremely high forecast for future gold prices. The first article titled "Elliott Wave and the Gold Price" was published on 25 August, 2003. This article can be reviewed at the following site:…

In August 2003 the gold price was in the region of $350 and there were a number of conflicting views about the future direction of the gold price. Robert Prechter, for example, was predicting a move to below $253 and possibly below $200. For a number of reasons I was of the opinion that gold was in the very early stages of a major bull market. My views were thus the opposite of Prechter’s and I eventually plucked up the courage to say so.

I count Robert Prechter as a friend, so my purpose was not to disparage his views. I was more interested in setting up some parameters or guidelines that would help determine the likely outcome if the gold price exceeded those levels. I concluded that if the gold price dropped below $309, the odds would favour Prechter’s view. If it pushed above $382, then my bullish view would probably be favoured.

This was more than just an academic exercise because in 2002 I had made a major change to our family investments, moving some 40% of the capital into gold and silver bullion plus a selection of gold and silver mining shares. If Prechter’s view prevailed, our family finances would have taken a serious drubbing.

Another reason for publishing the Updates was to illustrate a major advantage of the EWP, which is the ability to prepare a template forecast (or "road map") of how the market is likely to unfold in both the long and short term, including the possible terminal prices. The original article produced a template based on the rhythms that had been observed in the early stages of the bull market, based naturally on the assumption that my bullish views would prevail.

The early stages of the bull market revealed corrections of 4%, 8% and 16% at increasing orders of wave magnitude. Those numbers were used in the original template published in that 2003 article, a template that forecast that the first major move upwards could reach $630 after which a correction of the order of 25% to 33% would probably follow. In fact, if the sequence had been extended logically, the larger correction should be double 16%, or 32%, but this was shaved to 25-33%.

I thought that the $630 forecast was conservative and that this number would probably have to be adjusted upwards later once the minor waves unfolded. In 2003, with gold in the mid $300’s, a forecast of $630 was both courageous and extremely daring. There was no purpose served in taking the exercise beyond that point until after the $630 target had been achieved.

In addition, the 2003 article concluded that if $382 was surpassed, then the gold price would move rapidly to $424 without a serious correction. That did indeed happen, with gold reaching $425 before the anticipated correction occurred. That success encouraged me to write an article updating the original forecast. I did not anticipate that the consequence of that first update would be the production of this Update 23 some five years later.

There was a further undisclosed reason for writing these articles and that was to eventually highlight the massive potential of the gold bull market. I was reluctant to reveal what I really believed in 2003 as it was so bullish that it would have invited the arrival of the guys with straight jackets and padded cells.

As this will be the last of these Updates, I will reveal my previously unpublished "back of the envelope" calculations in 2003. They were as follows:

Major ONE up from $256 to approximately $750 (a Fibonacci 3 times the $255 low);

Major TWO down from $750 to $500 (a serious decline of 33%);

Major THREE up from $500 to $2,500 (a Fibonacci 5 times the $500 low);

Major FOUR down from $2,500 to $2,000 (another serious decline);

Major FIVE up from $2,000 to $6,000 (also a 3 fold increase, same as ONE)

A case can be made for an 8 fold increase in Major FIVE, which would continue the Fibonacci sequence 3, 5, 8. You can do the maths if you like, but the fact is you can pick your own number for the gain in Major FIVE. Three times the low of $2,000 was actually the conservative expectation, producing a bull market peak target of $6,000.

I would not have invested 40% of the family capital into gold, silver and the corresponding mining shares based solely on my bullish EWP expectations. The following is a quote extracted from "Elliott Wave and the Gold Price" written in 2003 and referenced above:

"I am not a gung ho advocate of the EWP. I discovered not only its strengths but also its weaknesses. I prefer to have fundamentals, technicals and the EWP all in place (if possible) before committing myself to an investment."

As mentioned in this quotation, I prefer to have fundamental and technical analyses in line with the EWP before committing to a position. Obviously I was satisfied with the fundamental and technical out look for gold when I made the dramatic change in our investment portfolio in 2002.

The technical analysis included the following:

The 21 year bear market in precious metals had ended with the multi-decade down trend line being broken on the upside.

The precious metal markets were oversold with sentiment and emotional indicators sporting extreme negative readings with bullish connotations.

In the 1970’s bull market, gold increased from a low of $35 to a peak of $850, a massive 24.3 times the low price. If the current bull market was to be of the same order, then one could project an ultimate peak of over $6,221 ($256 x 24.3). This matched the $6,000 target determined under the EWP.

The fundamental analysis was the real clincher. I had become convinced that the world, and especially the USA, was heading for a major financial crisis that would be so powerful that it would overwhelm all other factors. It would become the single most important criteria impacting on investment decisions.

Privately I referred to this as the "Big Kahuna" crisis.

I anticipated that the Big Kahuna would give rise to the risk of a systemic meltdown, which would result in the authorities "throwing money at problems", bailing out all the banks and large corporations that got into trouble. This would lead to the destruction of the currency. I wrote about this in more detail in "Seven D’s of the developing Disaster" in April, 2005, an article that can be found at the following site:…

The consequence of the systemic meltdown would be a vast increase in newly created money which would result in a massive rise in the gold price of the order that I was anticipating. A further consequence would be the introduction of new national and international monetary systems. Several articles followed in the next few years, culminating in "Crisis Cogitations" which was published just 2 weeks ago at the following site:…

If you haven’t read "Crisis Cogitations", I would urge you to do so in order to better understand the current crisis. Obviously the current financial crisis is the Big Kahuna that I had been anticipating, although I didn’t expect it to take five years to emerge.

Reverting back to the situation in 2003, both the technical and fundamental underpinnings for gold seemed to be pretty solid. Consequently I felt confident that the bullish EWP forecasts, both the shorter term and the undisclosed longer term expectation, would work out. There was no purpose served in revealing the potential for the market to reach $6,000. To get there, gold had to get to the $630 target first, which was a sufficiently daring forecast in 2003.

The current situation:

The chart below depicts the Comex Gold price on a weekly basis. In February 2006, in Update IV, the $630 target was increased to $768 as a result of intervening market action. A couple of months later the gold price exceeded $630 and moved to $733 in May 2006. From that point a 23% correction to $563 occurred.

Confusion reigned because a relatively minor correction had been anticipated, to be followed by a rise to $768. Thereafter the long awaited 25% to 33% correction was scheduled to occur. Instead, the decline measured 23% and the obvious conclusion was that this was the long awaited 25% to 33% correction, albeit slightly stunted. Quite possibly I was overly influenced by my previously unpublished rough target of $750 followed by a decline to $500. The actual outcome of a peak of $733 and a correction to $563 was remarkably close to my rough estimate and seemed to adequately fit the requirement for the end of Major ONE and the corrective wave Major TWO. In coming to this conclusion I glossed over the fact that the correction to $563 was an obvious triangle, and triangles are almost always 4th waves, yet I was calling it a 2nd wave, Major TWO. I also glossed over the fact that the correction was below the 25% to 33% magnitude required.

I mentioned previously that the early corrections were 4%, 8% and 16% at increasing orders of magnitude. If one were to be pedantic, one would say that the next level of correction should be 32%. Looking at the chart below, the correction from $1015 to $699 is 31%! It sticks out like a sore thumb. Surely this is exactly the 32% correction that we should have been anticipating for Major TWO?

Assuming that the $699 low on 23 October 2008 turns out to be the actual low point of the correction, and that remains to be proven, then we can conclude that we have seen the low point for Major TWO. That will allow us to update my original "back of the envelope" template to much higher levels, as follows:

Major ONE up from $256 to $1,015 (actually 4 times the $255 low);

Major TWO down from $1015 to $699, say $700 (a decline of 31%);

Major THREE up from $700 to $3,500 (a Fibonacci 5 times the $500 low);

Major FOUR down from $3,500 to $2,500 (a 29% decline);

Major FIVE up from $2,500 to $10,000 (also a 4 fold increase, same as ONE)

Once again, you can pick your number for the gain in FIVE and multiply it by $2,500. The numbers become astronomical and can really only be possible in a runaway inflationary environment, something which many thinking people are suggesting has become a possibility as a result of the actions taken during the current crisis.

Concentrating on the $3,500 target for Major THREE, which is a five fold increase from the low point of about $700, there is a case advanced in "Crisis Cogitations" for a five fold increase in money and prices in order to arrive at a "Less Hard" economic landing. In the USA, total debt recently exceeded $50 trillion and this is unsustainable given an economy with a GDP of only $14 trillion. The suggestion is that the debt level will reduce through bankruptcies to say $35 trillion while the new money created to save the situation will push up the nominal GDP to $70 trillion. A $35 trillion debt level is manageable with a GDP of $70 trillion.

It requires a five fold increase in prices to achieve the above result. Gold has retained its purchasing power over the centuries and will no doubt continue to do so in the current environment. Consequently gold will almost certainly increase five fold (or more) if the level of prices in the USA increases five fold.

In "Crisis Cogitations" it is acknowledged that the current credit/debt deflation could get out of hand and result in a serious deflationary depression. There is debate as to how gold will react in a deflationary environment, but the fact is that in a serious depression bankruptcies will be rife and price levels will decline. This may result in cash and Government bonds performing better than gold, but this is not certain. Gold cannot go bankrupt and is thus an asset that people can hold with confidence in a deflationary depression. It is possible that demand for a "safe haven" investment may be large enough to cause the metal to perform better than cash or Government Bonds.

The odds, however, strongly favour an inflationary outcome. Given a strong will and the ability to create any amount of new money via the electronic money machine, it seems a foregone conclusion that runaway inflation will be the end result. If Mugabe could do it in Zimbabwe, there seems little doubt that Ben Bernanke and his associates in other countries will have no trouble in doing it too.

Why quit writing these reports? I have noticed from the emails that I receive that many people are using these reports to guide their trading activities in gold. I have had no objection to this in the past, but feel that it would be foolish to trade gold in the circumstances of the Big Kahuna crisis that we are living though at the moment. It has become a question of individual financial survival in an environment where things are happening more rapidly and with increasing violence. I feel very strongly that it is time to quietly hold onto one’s gold insurance and not attempt to trade it. I do not wish to provide interim levels that may cause people to be encouraged to trade their gold to skim a few extra fiat dollars or other currencies, but lose their gold as a result.

So it is Good Bye, Good Luck and God Bless.

Alf Field
25 November 2008
Comments to:


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

Dear CIGAs,

Fuzzy Math? Isn’t that just dandy where our auditing board is concerned.

I am glad that I am 68.

Is there a future for my grandchildren?

My answer is to leave them minerals, not cash, in order to give them some protection in an ever growing heartless and meaner world.

Big banks’ fuzzy math
JPMorgan and Wells Fargo play up an obscure measure of their profitability to show how strong they are – but surging credit losses may hint otherwise
By Colin Barr, senior writer
Last Updated: April 16, 2009: 1:23 PM ET

NEW YORK (Fortune) — Just in time for TARP repayment season, the big banks have found a new way to show off their supposedly good health.

New York-based JPMorgan Chase (JPM, Fortune 500) became the latest financial giant to beat Wall Street’s expectations Thursday, posting a first-quarter profit of $2.1 billion, or 40 cents a share.

CEO Jamie Dimon has spent the past year boasting of his bank’s "fortress balance sheet," but he shifted gears Thursday, stressing another factor that he said will see JPMorgan through the economic crisis: the underlying earnings power of its core consumer, commercial and investment banking businesses.

JPMorgan said its pretax, pre-provision earnings — reflecting the profits the firm brings in before paying Uncle Sam or taking account of current and future loan losses — were $13.5 billion in the first quarter.

The bank hasn’t previously publicized this figure, which is favored by analysts but isn’t recognized under generally accepted accounting principles, in its earnings releases. But JPMorgan isn’t the only bank trotting it out.

A week ago, for instance, Wells Fargo (WFC, Fortune 500) surprised investors by saying it expected to post a $3 billion profit in its first quarter — double Wall Street’s expectations. Just in case the message wasn’t clear, the bank also said in that release that its pretax, pre-provision earnings for the quarter were $9.2 billion.


Jim Sinclair’s Commentary

The is the "end of the beginning" and "the beginning of the end" for Pakistan as an ally of anybody allied to the West. Still, where is the analysis of what this will mean to markets? It is nowhere to be seen.

Out on bail, radical cleric calls for Islamic law across Pakistan
ISLAMABAD — A radical cleric, just freed from detention on bail, returned in triumph Thursday night to the Red Mosque in the Pakistani capital and raised the slogan of Islamic revolution before thousands of excited supporters.

Bearded men packed the mosque, long associated with extremist Islam and with links to al-Qaida, while outside on the sidewalk rows of women sat clad in all-enveloping black burkas, only their eyes showing. Many were young adults who had come from Islamic seminaries.

"We will continue our struggle until Islamic law is spread across the country, not just in Swat," Abdul Aziz, who had been chief cleric at the mosque, told the fired-up congregation. Dressed in white flowing traditional clothes, with a white turban and his long white beard, he looked a messianic figure.

Aziz was carried in on the shoulders of supporters after arriving in a motorcade from the nearby city of Rawalpindi. He had been under house arrest since 2007 over terrorism-related charges until a court granted him bail earlier this week.

Earlier this week, Pakistan’s president bowed to pressure from extremists and agreed to impose Islamic law in Swat, a valley northwest of Islamabad, in a bid to end a two-year insurgency there by Pakistani Taliban. Now with Aziz’s release, Islamists have an ideologue to rally around.


Jim Sinclair’s Commentary

That is a hard call to make if the trading profits are really "at risk" trading profits. Are they?

JPMorgan, Goldman trading profits unlikely to last
Fri Apr 17, 2009 12:29am BST
By Elinor Comlay – Analysis

NEW YORK (Reuters) – JPMorgan Chase and Goldman Sachs Group racked up billions of dollars in trading profits in a volatile first quarter — but don’t expect these lucrative markets to last into the next quarter, or to necessarily benefit other banks, analysts say.

Goldman and JPMorgan, seen as probable long-term survivors amid the carnage that ravaged most of the industry, boosted their trading risk levels in the first three months of the year to exploit swings in asset prices.

They both expanded market share following Lehman Brothers’ demise in September and Bank of America Corp’s capture of Merrill Lynch & Co.

Citigroup Inc, another major competitor in past years and under intense scrutiny following a government rescue, will see whether its hobbled financials significantly weakened its trading business when it reports quarterly results on Friday.

But trading profits and market-share gains may not be so easy to come by in the second quarter, analysts caution, and it may be too late for other banks like Morgan Stanley — which reports next Wednesday — to catch up.


Jim Sinclair’s Commentary

What else is shrouded?

If you would like to be terrified read about it in Webbot.

Fed Shrouding $2 Trillion in Bank Loans in ‘Secrecy,’ Suit Says 
By Mark Pittman

April 16 (Bloomberg) — U.S. taxpayers need to know the risks behind the Federal Reserve’s $2 trillion in lending to financial institutions because the public is now an “involuntary investor” in the nation’s banks, according to a court filing by Bloomberg LP.

The Fed refuses to name the borrowers, the amounts of loans or assets banks put up as collateral under 11 programs, arguing that doing so might set off a run by depositors and unsettle shareholders. Bloomberg, the New York-based company majority- owned by Mayor Michael Bloomberg, sued Nov. 7 under the Freedom of Information Act on behalf of its Bloomberg News unit. It made the new filing yesterday.

“The Board’s arguments are based on wispy speculation, lack evidentiary support and are contradicted by economic theory,” said Thomas Golden and Jared Cohen, lawyers with New York-based Willkie Farr & Gallagher LLP, in a motion asking the judge to require disclosure.

“These government actions, which have been shrouded in secrecy, are at the heart of Bloomberg’s FOIA requests,” the attorneys said.

Members of Congress also have demanded more information than President Barack Obama and former President George W. Bush have disclosed on the bailout of the U.S. financial industry. Congress approved $700 billion to bolster banks, whose losses on mortgage securities and home loans contributed to the recession.


Just a Reminder:

Armstrong’s dates are a product of his write up "It’s Just Time." They are mathematics, not good guesses.

He sees either April 19th or June for the low in the gold market. Assuming it is June then he sees gold reaching $5000.

Don’t let the bastards get you down!

Jim Sinclair’s Commentary

This is definitely coming because it already exists.

Will public pensions be next bailout?
4/16/2009 8:53:00 AM
John Nothdurft

Along with the stock market, retirement savings, and taxpayers’ sanity, state and municipal government employee defined-benefit pension funds are reeling from the financial meltdown.

The current economic turmoil and stock market downturn have caused government employee pension funds to lose hundreds of billions of dollars. The crisis only reinforces the need for states to move their pension systems from the onerous defined-benefit obligation to a more mobile and sustainable defined-contribution model.

It’s a potentially catastrophic problem.

According to the Center for Retirement Research at Boston College, as of Dec. 16, 2008 public pensions in the United States were underfunded by nearly $1 trillion. Worst is Illinois, where the pension system has only 54 percent of the necessary funding and an unfunded liability of $54.4 billion.

Even before our current financial shakeup, more than 20 million state and local government employees’ pensions nationwide were in dire fiscal shape.

For example, in June 2007 New Jersey’s unfunded liability was already $28 billion. Since then the number has soared to more than $52 billion, with roughly 45 percent of the obligation unfunded.


Jim Sinclair’s Commentary

Mark to market accounting is a truth machine. Here is what is properly defined as a gimmick, a falsehood machine.

Wells Fargo’s Profit Looks Too Good to Be True: Jonathan Weil
Commentary by Jonathan Weil

April 16 (Bloomberg) — Wells Fargo & Co. stunned the world last week by proclaiming it had just finished its most profitable quarter ever. This will go down as the moment when lots of investors decided it was safe again to place blind faith in a big bank’s earnings.

What sent Wells shares soaring on April 9 was a three-page press release in which the San Francisco-based bank said it expected to report first-quarter net income of about $3 billion. Wells disclosed few details of what was in that figure. And by pushing the stock up 32 percent that day to $19.61, investors sent a clear message: They didn’t care.

Dig below the surface of Wells’s numbers, though, and there are reasons to be wary. Here are four gimmicks to look out for when the company releases its first-quarter results on April 22:

Gimmick No. 1: Cookie-jar reserves.

Wells’s earnings may have gotten a boost from an accounting maneuver, since banned, that it used last year as part of its $12.5 billion purchase of Wachovia Corp. Specifically, Wells carried over a $7.5 billion loan-loss allowance from Wachovia’s balance sheet onto its own books — the effect of which I’ll explain in a moment.

First, a quick tutorial: Loan-loss allowances are the reserves lenders set up on their balance sheets in anticipation of future credit losses. The expenses that lenders record to boost their loan-loss allowances are called provisions. As loans are written off, lenders record charge-offs, reducing their allowance.


Jim Sinclair’s Commentary

This is what OTC derivatives have done to people.

Economic survivalists take root
By Judy Keen, USA TODAY

When the economy started to squeeze the Wojtowicz family, they gave up vacation cruises, restaurant meals, new clothes and high-tech toys to become 21st-century homesteaders.

Now Patrick Wojtowicz, 36, his wife Melissa, 37, and daughter Gabrielle, 15, raise pigs and chickens for food on 40 acres near Alma, Mich. They’re planning a garden and installing a wood furnace. They disconnected the satellite TV and radio, ditched their dishwasher and a big truck and started buying clothes at resale shops.

"As long as we can keep decreasing our bills, we can keep making less money," Patrick says. "We’re not saying this is right for everybody, but it’s right for us."

Hard times are creating economic survivalists such as the Wojtowicz family who are paring expenses by becoming more self-sufficient.

Reviving "almost lost" skills and preparing for tough days make people feel more in control, says Charlotte Richert, consumer sciences educator for Oklahoma State University’s Extension Service in Tulsa County.

Karen Gulliver, MBA program chair at Argosy University in Eagan, Minn., expects the movement to grow as the sour economy forces people to reassess priorities. People are asking, "Do I really want to be 100% vulnerable with no self-sufficiency skills if something happens?" she says.


Jim Sinclair’s Commentary

Just to keep you balanced as the media assures you of everything everywhere.


Jim Sinclair’s Commentary

This strategy is by no means limited to South America.

The West has no plan, reacting only to immediate problems and needs.

Asia plans 100 years in advance ands works the plan. No wonder the dollar is headed South while Asia, especially China, rises consistently.

China bashers simply don’t get it.

It is patriotic to see what is and make a plan, not what isn’t and just act reactively.

Deals Help China Expand Sway in Latin America
Published: April 15, 2009

CARACAS, Venezuela — As Washington tries to rebuild its strained relationships in Latin America, China is stepping in vigorously, offering countries across the region large amounts of money while they struggle with sharply slowing economies, a plunge in commodity prices and restricted access to credit.

In recent weeks, China has been negotiating deals to double a development fund in Venezuela to $12 billion, lend Ecuador at least $1 billion to build a hydroelectric plant, provide Argentina with access to more than $10 billion in Chinese currency and lend Brazil’s national oil company $10 billion. The deals largely focus on China locking in natural resources like oil for years to come.

China’s trade with Latin America has grown quickly this decade, making it the region’s second largest trading partner after the United States. But the size and scope of these loans point to a deeper engagement with Latin America at a time when the Obama administration is starting to address the erosion of Washington’s influence in the hemisphere.

“This is how the balance of power shifts quietly during times of crisis,” said David Rothkopf, a former Commerce Department official in the Clinton administration. “The loans are an example of the checkbook power in the world moving to new places, with the Chinese becoming more active.”

Mr. Obama will meet with leaders from the region this weekend. They will discuss the economic crisis, including a plan to replenish the Inter-American Development Bank, a Washington-based pillar of clout that has suffered losses from the financial crisis. Leaders at the summit meeting are also expected to push Mr. Obama to further loosen the United States policy toward Cuba.


Jim Sinclair’s Commentary

More Armstrong dated April 15th 2009

Martin Armstrong – Financial Panics = Political Change!
Wednesday, April 15, 2009

As promised, here is Mr. Armstrong’s latest.

In it he covers a wide gamut from talking about what I call the “events that tend to follow economic events,” to the concentration of capital, to debts.

But then he sets out to explain the way things should work in his well informed opinion. Restore Rule of Law, abolish the income tax as our forefathers envisioned, regulatory reform, and even changing our currency system.

He is correct that a window of opportunity is coming. His inputs are unique and deserve consideration.



Jim Sinclair’s Commentary

Be very careful of what you plan without full knowledge.

It might just embarrass the critic.

Nassim Taleb Says Banks `Hijack Us,’ Can’t Be Trusted

Jim Sinclair’s Commentary

The level off at these numbers is not good news.

General Growth Files Biggest U.S. Property Bankruptcy (Update1)
By Daniel Taub and Brian Louis

April 16 (Bloomberg) — General Growth Properties Inc. filed the biggest real estate bankruptcy in U.S. history after amassing $27 billion in debt during an acquisition spree that turned it into the second-largest shopping mall owner.

The owner of Boston’s Faneuil Hall and the South Street Seaport in New York City ended a seven-month effort today to refinance its debt. The company listed $29.5 billion in assets and debts of about $27.3 billion in the Chapter 11 filing. General Growth will continue operating its more than 200 properties.

“We intend to emerge as a leaner company,” General Growth President Thomas Nolan said in an interview today. “We want to come out as a less leveraged company. Our business model remains strong.”

General Growth collapsed after spending $11.3 billion to buy commercial-property developer Rouse Co. in 2004 only to get caught in the credit crunch and a U.S. recession that has cut spending and property values. Banks have reduced lending amid mortgage-related writedowns. Commercial real estate prices in the U.S. dropped 15 percent last year, according to Moody’s Investors Service. Retail sales in the U.S. unexpectedly fell in March as soaring job losses forced consumers to pull back.

The filing lists Eurohypo AG, a unit of Commerzbank AG, as General Growth’s largest unsecured creditor with claims totaling $2.59 billion under two loans. Noteholders are owed about $4 billion.


Posted at 2:47 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Gold succumbed to selling pressure which was widespread across all of the metals in today’s session. Silver was hit particularly hard as the recent huge drawdown in Comex warehouse stocks came to an end (at least as of yesterday). Copper was derailed with the lower than expected Chinese GDP numbers undercutting recent bullish enthusiasm for the red metal while both platinum and palladium were weaker. With crude oil moving lower or at least unable to maintain its footing above the $50 level, gold simply ran out of friends today.

The technical picture for gold suffered a setback with its break under the 100 day moving average which has also taken it beneath the broken neckline of the head and shoulders topping pattern on the short term charts. Bulls have the onus upon them to hold prices near $880 and from setting back much further and threatening the $865 level. If they fail there, the bearish flag formation will be complete as well as bringing the head and shoulders pattern back into effect. That would give gold potential to move down to near $850. Failure there would target $816 – $820. About the best the bulls seem to be able to do right now is to keep it from falling further as they are unable to push it strongly enough to dislodge the sellers lurking overhead near the $910 level.

Gold just seems to be acting “tired” right now. Keep in mind that modern markets have now morphed into being all about momentum. Funds do not make money if prices do not move particularly to the upside. Once momentum stalls out, funds go and look for opportunities elsewhere. That is what we are seeing in gold for now. Generally when this sort of thing occurs and funds exit, the bullion banks have been the ones supplying the buying as they cover existing shorts into the fund selling. Physical market buying from India and other points to the mid and far East tend to reinforce the demand picture as buyers move in to take advantage of the lower prices. The key in determining whether gold will maintain its footing above its chart support levels is whether that buying is sufficiently large enough to offset investment side liquidation. One thing that clouds this picture somewhat is that the reported holdings of the big gold ETF, GLD, have remained unchanged at 1127 tons for the last three weeks. That is quite odd given the weakness in gold over this same period. One would expect to have seen those numbers drop off given the fact that open interest in Comex gold has fallen off nearly 40,000 contracts over that same period. Are the buyers of GLD, “sticky buyers”, who are long term holders and is the selling in gold a Comex phenomenon? I am simply not sure but it is difficult to envision gold falling much further if the GLD numbers do not drop off as they have generally done in years past during periods of gold price weakness. We’ll keep an eye on this for you.

I want to draw your attention to the entire commodity complex as a whole as indicated by the Continuous Commodity Index or the CCI. I am including a weekly chart to show a broader picture of what is taking place. If you notice, the CCI bottomed out in December of last year and has spent the last 4 months slowly grinding higher. Notice that there is no sharp, upward thrust but rather a steady, tortoise-like crawl higher. I monitor this chart to try to get some sort of visual gauge depicting the battle between the deflationists and the inflationists. Commodities are the arena in which this battle will play itself out so by keeping a watchful eye on this chart, we can see which side is gaining the upper hand. I would suggest that the deflationist forces have seen their best days and the mood is ever so painfully slowly shifting towards concerns related to inflation. The inflation numbers yesterday suggested the contrary but those are not forward looking. With quantitative easing in full force, commodity markets are already anticipating the return of inflation. This is another factor that will eventually works in gold’s favor  as an uptrending CCI is not conducive to falling gold prices. Odds favor a continuation of this pattern in the CCI with the chance of a sharp upward spike at this time quite remote. Only a break below that December low would give the deflation side argument any new life.

I might add this is why crude oil has been trading so contrary to its current negative fundamentals. Crude oil has become a proxy for inflation and trades more like a currency than an outright commodity. That is one of the main reasons crude oil traders are tearing their hair out trying to understand what is taking place in that market.

Chart patterns on the HUI and the XAU are decidedly bearish with both indices now moving downs toward the 100 day moving average. Both the 10 day and 20 day moving averages are now moving lower reinforcing the short term negative technical picture. The one saving grace that I can see on the daily charts of both indices is that some of the technical indicators are now down in the oversold zone from which prices have popped higher over the last 4 months.

We are not getting much if any help from the bond market as far as clues for what we might expect in the economy moving forward. They are trapped in directionless, sideways trade with the very short term pattern looking bearish but the pattern over the last few months typical of a broad range trade. Bonds have not been able to best the high made the day that the Fed first announced its debt monetization policy but neither have they gone back down to revisit the low made that very same day prior to the announcement that afternoon.

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