Posted at 7:46 PM (CST) by & filed under General Editorial, Trader Dan Norcini.

Dear CIGAs,

In relation to the story Jim brought to your attention earlier about the Fed monetizing US agency debt…

The reason they are being forced into buying the debt is because no one else wants it. We have been charting this for some time here at the site by monitoring the Custodial data from the US Federal Reserve system.

I am attaching the chart for you all to review so you can all once again see how foreign Central Banks are dumping Fannie and Freddie debt in large amounts onto the market. Without the Fed monetizing that debt, there would be a significant drop off in the amount of funds for mortgages. I expect this week’s data to show no change in the liquidation of this agency debt which has now reached a total of $167 billion and is rising.

The Fed is going to need every bit of that $500 billion they are going to create out of thin air to acquire what the foreign Central Banks are unloading.

Best wishes from your pal,
Trader Dan

Click chart to enlarge today’s Agency Debt chart in PDF format with commentary from Trader Dan Norcini

AGency debt chart - Custodials.jpg

Posted at 7:22 PM (CST) by & filed under Guild Investment.

Dear CIGAs,

ECONOMIC OUTLOOK FOR 2009

The U.S. and most major economies will remain in recession in 2009.  If we are lucky, we will see an economic recovery starting in early 2010.  If we are unlucky and the banking system does not create more liquidity, we will not see an economic recovery until mid 2010…or later.  When the recovery arrives, it will probably be anemic and create little economic growth.  The big problem for the developed economies is that they are becoming more structurally inefficient.  We are not aware of any instances in the U.S. or Europe where government ownership of companies and industries has ever produced increases in productivity and efficiency.  It is not difficult to speculate that the current experiment will reduce productivity and efficiency.

Some of our predictions for the next few years:

1. Income taxes, use taxes, and fees of all types will rise.
2. Populist economic programs will be implemented.  These are well known to lead to slower long term growth in the developed world.
3. The gap between growth in the developed world and the developing world; China, India, and Brazil will expand.  The developed world will be less free market oriented, and more constrained by the after effects of the big bailouts.  We expect that developed world economic growth could remain at very low rates for years.  The well managed parts of the developing world will continue to grow more rapidly (Eastern Europe, and parts of Latin America are not included in the well managed group).
4. The need for U.S. and other major countries to finance their bail out programs will lead to massive issuance of government bonds, forcing the U.S. dollar down.
5. Most everyone is talking about deflation now, but inflation will be the big problem in a few years.
6. We expect U.S. Treasury bonds, which are currently popular with investors seeking safety and liquidity, will prove to have been a very poor investment.  We expect those who bought longer term bonds with low yields to be hurt when the bubble in Treasury bonds pops.

We are happy to say that many of our views are the opposite of the consensus, and that very few agree with us.  We are most comfortable when very few agree with our views.  For example, when we predicted in print years ago the bond and derivative problems would unwind poorly, very few agreed with our view. 

BEWARE OF ‘BUY AMERICA’ PROGRAMS AND OTHER ANTI FREE TRADE STUPIDITY

Does anyone have a history book?  Does anyone remember Smoot-Hawley? Does anyone realize that tariffs and other non free trade mechanisms made the Great Depression much worse than it would have been otherwise?  Do we wish for the world economy to survive and return to health?

If the answer to the above questions is yes, then we should dispense with this anti-free trade political talk immediately.  If the answer to the above is no, then may I propose that the politicians who are proposing non-free trade agendas have an economic death wish.  They are willing to let the U.S. economy die long term in order to garner votes from the ignorant in the short term.

HOW TO INVEST IN 2009

In our opinion, one should:

A. Buy things that benefit from a declining dollar as the big bond flotations will force the U.S. dollar down.  Some examples: Foreign currency denominated bonds, gold shares, and grain commodities. 

B. Buy other assets especially stocks, government guaranteed bonds, and income stocks when they get cheap.

2009 will provide discount prices for good assets in many parts of the world, it will not be easy.  We must avoid fear and resort to rationality.  When things get cheap enough, we will buy them.  By the way, from the market bottom in 1932 the Dow Jones Industrial Average rose about 450 % over the next 4+ years.  Most would agree 450% is a good return.  While we do not see that kind of opportunity right now, we may see some very good opportunities develop in coming months.

Thanks for listening

Monty Guild and Tony Danaher
www.GuildInvestment.com

Posted at 7:13 PM (CST) by & filed under General Editorial.

Dear CIGAs,

Here is the other "WHY" gold was sold down today.

The truth will set you free of the manipulators.

$25,000,000,000 of index commodity funds follow the index readjustments made herein.

Gold is REDUCED from 10.8 to 7.9 percent of the index which therein causes related selling by INDEX FUNDS.

Buying or selling by index funds is a yearly, onetime event. These adjustments are needless artificial buying and/or selling of specific commodities that skew market prices and produce opportunities both to buy and sell short.

You think reweighting is a product of a hands off process in today’s rotten to the core world? You probably also believe in Santa Clause.

Beware, commodity index rebalancing ahead
Posted by Izabella Kaminska on Jan 05 15:34.

The major commodity indices rebalance their respective asset weightings once a year (or occasionally more) — and with that comes a mass dose of buying and selling. The 2009 rebalancing is expected to start sometime this week.

Luckily, JP Morgan has produced its best guess of how the 2009 reweightings of the DJ AIGCI and the S&P GSCI indices will impact the market.

The weightings for both indices are released ahead of time, but begin to kick in the first few working days of the new year. In the case of the DJ-AIGCI — which JP Morgan estimates has $25bn in funds tracking it — the new weightings come into force during the roll period that begins January 9th. The S&P GSCI index weightings kick-in after its January roll which commences January 8th. JP Morgan estimates about $50 bn of investment into that index.

As the DJ weighting multipliers account for changes in US dollar-denominated values there is generally more potential for large changes there than in the GSCI, whose weightings are set in terms of ounces/tonnes (on the basis of liquidity and are weighted by their respective world production quantities).

Accordingly, JP Morgan see the most significant change coming in the DJ-AIGCI rebalance. Here the market weight of crude oil is expected to increase from 9.6 per cent to 13.8 per cent, gold from 10.8 per cent to 7.9 per cent, copper (COMEX) from 4.5 per cent to 7.3 per cent, live cattle from 6.4 per cent to 4.3 per cent and sugar from 4.7 per cent to 3.0 per cent. Meanwhile, S&P GSCI crude oil weight will go from 32 per cent to 33.8 per cent. Their analysis:

In financial terms, we expect the rebalancing to have the greatest impact in gold, COMEX copper, crude oil, gold, and live cattle. We estimate that the rebalancing of the two indices is expected to result in $877 million of selling in gold, $699 million of buying in COMEX copper, $528 million of selling in live cattle, and $523 million of buying in crude oil.

More…

Posted at 4:34 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

Monetization of market-less bankrupt debt with no guarantee of recovery in value is the ULTIMATE ACT OF INFLATION, in this case, the US dollar.

Axiom: To monetize debt is to inflate currency

Monetize

What Does Monetize Mean?

1. To convert into money.
2. To convert from securities into currency that can be used to purchase goods and services.

Investopedia explains Monetize…

For example, you’ll often hear Internet marketers talk about "monetizing website visitors." This is another way of saying that the marketers are trying to figure out a way of making money from website visitors, such as through advertising, ecommerce, etc.

http://www.investopedia.com/terms/m/monetize.asp?viewed=1

New York Fed Begins Purchases of Agency Mortgage Debt (Update1)
By Craig Torres

Jan. 5 (Bloomberg) — The Federal Reserve Bank of New York started buying mortgage-backed securities today as part of a $500 billion program to support the U.S. housing market.

The New York Fed “began purchasing fixed-rate mortgage- backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae,” the Fed bank said in a statement released by e- mail. “Selected private investment managers are acting as agents of the New York Fed in these purchases.”

The central bank didn’t disclose the amount of the purchases, saying such details will be available on the New York Fed’s website beginning Thursday, Jan. 8, and will be updated each Thursday.

The Fed chose BlackRock Inc., Goldman Sachs Asset Management, Pacific Investment Management Co. and Wellington Management Co. to manage the $500 billion purchase of mortgage- backed securities it plans to complete by June.

The collapse of U.S. mortgage finance last year led to the worst credit crisis in seven decades and triggered writedowns and losses at financial institutions exceeding $1 trillion.

The central bank has expanded credit by $1.3 trillion over the past year through programs extending liquidity to banks, bond dealers and other financial institutions. The Fed plans to create money to purchase the bonds, boosting bank reserves.

More…

Posted at 4:29 PM (CST) by & filed under Jim's Mailbox.

Dear CIGAs,

CIGA Dean shares with us a case study on why the heard headed for the long bond, for the T bill and into every port that was and will be no port in this financial storm. There is only one and that is Gold. They will come at $1650 and again at $6000.

Jim,

I wanted to pass this story on to you, Dan and Monty.

I grew up on a ranch. The largest structure on our ranch was a very large and beautiful classic designed barn.

One night when I was very young the barn caught on fire.

My Dad and his hired men risked running into the barn to rescue the horses. Naturally the horses were panicked and terrified. After getting the horses outside to safety the horses turned around and ran back into the barn. Despite their best efforts they could not stop the horses from running back into the barn and they all perished in the fire.

Why would the horses do such a foolish thing?

My Father told me that the barn was where they felt safe and secure. He explained to me that in their blind panic they ignored the obvious danger and they ran back into the only place they had been conditioned to feel safe in.

Sound familiar?

CIGA Dean

 

Jim,

Here is a case of political correctness run completely amok… 

No one or no thing is safe until Washington is in recess. If it moves these people will tax it…

Trader Dan

Dan,

What about taxing human flatulence at $10 a pop, of course with a national identity card placed appropriately so that automatic reports are made of offending incidents. We want zero tolerance when it comes to this offal subject.

Regards,
Jim

EPA ‘Cow Tax’ Could Charge $175 per Dairy Cow to Curb Greenhouse Gases 
Farm Bureau warns just this one rule may increase milk production costs up to 8 cents a gallon.
By Jeff Poor 
Business & Media Institute
12/30/2008 4:55:19 PM

Call this one of the newest and innovative the ways your government has come up with to battle greenhouse gas emissions.

Indirectly it could be considered a cheeseburger tax, but one of the suggestions offered by the Environmental Protection Agency (EPA) in its Advance Notice of Proposed Rulemaking (ANPR) for regulating greenhouse gas emissions under the Clean Air Act is to levy a tax on livestock.

The ANPR, released early this year, would give the EPA the authority to regulate greenhouse gas for not only greenhouse gas from manmade sources like transportation and industry, but also “stationary” sources which would include livestock.

The New York Farm Bureau assigned a price tag to the cost of greenhouse gas regulation by the EPA in a release last month.

“The tax for dairy cows could be $175 per cow, and $87.50 per head of beef cattle. The tax on hogs would upwards of $20 per hog,” the release said. “Any operation with more than 25 dairy cows, 50 beef cattle or 200 hogs would have to obtain permits.”

Kate Galbraith, correspondent for The New York Times, noted on the Times’ “Green Inc.” blog that such a “proposal is far from being enacted” and that the “hysteria may be premature.”

But Rick Krause, senior director of congressional relations for the American Farm Bureau, warned it’s certainly feasible – especially based on the rhetoric of President-elect Barack Obama and the use of the EPA to combat global warming. Such action by an Obama administration would take an act of Congress for livestock to be exempt.

More…

Posted at 3:59 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

The start of a full week of trading in the New Year brought back the full complement of traders and with them the usual selling pressure emerged precisely at 2:00 AM, CST as London opened for business. The Euro was immediately violated and with its assault, the Dollar went the other way, namely straight up. Of course the usual gold selling gang wasted no time in attacking the yellow metal as it was pummeled $15. From that point it was nowhere but down as trading moved into New York where it received another mugging as all of the gains produced in the thinly-traded holiday markets of last year were wiped out. As I mentioned last week, low volume price action must always be suspect – it is simply too easy for a few, well-timed big orders to push  a holiday market in any direction one wants it to go.

Today’s downdraft has taken gold back under the 10 day moving average which has now turned lower. Gold is still trading above the 20 day moving average and the longer term moving averages are still trending upwards so technically the market is bullish although the recent price action has left a somewhat negative short term chart formation that gold will have to deal with. It should be noted that once again the buy recommendation of a well known newsletter writer has proved to be the kiss of death for any gold rally. It is amazing to me how uncannily accurate in an inverse manner this writer has been when it comes to gold. Buy recommendations mean gold sells off and sell recommendations means that gold is getting ready to rally. Fading his actions has proven to be quite profitable for astute gold traders.

Support near the $850 level gave way early in today’s session before buying showed up in sufficient size to push the market away from that zone. This initial support did hold but barely.  The next level of support should $850 give way, and one that gold must hold in order to keep the technicals friendly, is the $830 level. Two consecutive closes below that level and a short term top will be in (at least for gold priced in Dollar terms). Resistance still lies at the very stubborn $880 level. It is obvious that a seller/sellers of size are making a stand there – we all know who that is by now.

Again – at the risk of beating a dead horse- the only way to beat that crowd is to remove the metal from the Comex warehouses. Players of size must understand that they cannot win the paper game at the Comex unless they deprive the paper shorts of sufficient metal backing to make them vulnerable to delivery pressures. Along that line only 3 deliveries were assigned in the January this morning bringing this month’s total to 1,156 contracts or 115,600 ounces. January is a very thinly traded contract month so the bulk of any strategy to take gold in size will probably have to be relegated to the February as this month winds down. Those who intend to do so should use any selling pressure provided by the bullion banks, such as what we have seen today, as an opportunity to put on fresh longs with the intent to acquire the physical metal at a discount.

We had just begun to see an increase in the open interest in gold which now means that all of the brand new longs from the last week are under water and losing money on their positions. Some of the shorter term oriented guys were stopped out today and might even have gone short. The funds will maintain the bulk of their longs as long as moving average support is not violated.

There was a great deal of chatter this morning that the US Dollar was moving higher on details of the proposed economic stimulus by the incoming Obama administration which added some tax cuts to the package in order to attract some Republican support. The thinking is that a combination of spending and tax cuts will help the US to come out of its economic funk sooner than other countries which have also been afflicted by the spreading recessionary virus. That remains to be seen but for today that is the current “wisdom”. One thing is certain in these goofy modern markets – today’s wisdom is more often than not seen as foolishness in hindsight. It is necessary to keep in mind that the hedge funds that plague today’s markets are the antithesis of wisdom – their trading skills consist of playing Pac-Man with whatever unfortunate market they happen to hone in on.

Interestingly enough, all of the commodity currencies ( the Australian, New Zealand and Canadian Dollar) were trading higher against the US Dollar this morning. I am not sure what to make of that just yet but it bears watching. It could very well be that some players are sensing a bottom in the commodity complex. If that is indeed the case, and I believe it certainly is for the grain complex, then gold will benefit. The platinum group of metals has negative macroeconomic factors to deal with as does copper so if those two metal groups can forge a definitive bottom, it will be quite friendly for the entire commodity sector. Let’s just watch and see how this goes.

The mining sector was knocked lower today in the face of paper gold weakness but the HUI and the XAU have recovered off of their worst session levels as the broader US markets moved higher and into positive territory. There are some signs of bearish divergence on some of the technical indicators for the HUI and XAU daily charts although both indices remain well above their 50 day and 100 day moving averages. One could make the case for a POTENTIAL double top in the HUI near the 309-311 level but that would only be confirmed were the HUI to close below the 260 level. That level also closely corresponds to the 100 day moving average which should garner buying support if this sector is indeed going to sustain its uptrend into early 2009.

Crude oil moved further away from its chart lows this morning as a combination of geopolitical tensions from Israel/Gaza/, Russian idiotic shenanigans with their energy sources and further disruptions to Nigerian crude production as nine workers on a rig were taken hostage all served to garner speculative buying in that pit. Call me a bit skeptical still on the crude rally as I want to see further confirmation before I would feel comfortable saying that a longer term bottom is in this market. Technically the charts are improving but the $50 level is pretty significant technical resistance so until that is broken I am a doubter. I can see a consolidative type of trade in crude where it finds support down in the low $40’s to upper $30’s but as far as a new bullish uptrend goes, given the current recessionary environment, it will take geopolitical events to drive it higher. It should be noted that crude’s strength this morning helped to pull gold off of its worst levels of the session.

One more point to note – there is talk about rebalancing of commodity indices which will bear watching as that will have an impact on gold should rumors be proven true.

The bonds are looking more and more like a top is in. They have broken down below both the 10 and 20 day moving averages with both of those also now turning lower. Should they give way at the 40 day moving average near the 130^20 level, chances are that the lows are in for yields. I expect the funds to put up a fight at that level to defend their longs.

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

January0509Gold1230pmCDT

Posted at 12:50 PM (CST) by & filed under General Editorial.

Dear CIGAs,

More tax cuts and more voodoo economics, a replay of the Mugabe/Zimbabwe approach to manufacturing paper and the dropping of tax revenue produce at best a double dip depression and more fiscal spending. It is simply more of the same. Doing the same produces the same, nothing else. Any other opinion is madness while grabbing at political solutions to real problems.

The fix was engineered by the Comex guys as they handed you your daily screwing yet again today at 7:02am in the NYC morning. Apparently the Comex guys got up a tad late today – perhaps still suffering from weekend hangovers.

Minus $23 in gold and a three cent change in the euro are simply more signs of the madness that is virulent in the mind of markets. As the fat shark eats the fat shark we end up with very few fat hedge fund sharks running markets. Nobody can do business when major trading currencies change 2.7% in five minutes. No major business on earth is smart enough to be able to maintain profit margins as the payment currencies change with such levels of violence.

Ignore the madness. Ignore the manipulators. Focus on the real. More of the same by a different personality will not produce different results. The dollar is dead. That is reality.

Let the paper tigers of the Comex pound the paper while you take delivery out of the warehouse and the big physical buyers just keep cleaning up and weak hand selling. I went to the Krugerrand and RSA gold factory between Johannesburg and Pretoria. All I heard was this great sucking noise as demand across the globe continued to take whatever the mints were able or willing to produce.

It is a total joke to assume that printing more paper money and spending what you do not have will strengthen that currency and set all that is askew right.

It simply will not, cannot, never has done and never will do anything but deepen the problem.

Let the nit-wits play in their in their boxes made on sand foundations. Let the media howl as they add only to their Tower of Babble.

Join me in this grand battle to end white collar crime and the white collar criminals. Take delivery of Comex gold, move it out of the Comex warehouse, sell it in the open market with a profit or even break even and do it all again and again and again. 1000 of us doing that by buying breaks like today will slice the Comex warehouse inventory in half in six months, maybe a lot sooner. War requires warriors.

Please join myself, Harry, Bill M , Jim P, Semper Fi # 321 and all the good guys, regardless of disagreements that come from time to time, in this great battle to protect our people.

Stop the rape! Stop the manipulations. Stop the takers, the users and the destroyers in gold. Stop paper money by getting the paper guys off gold. Stop those who believe they have dominion over you. I have had it, haven’t you? Where is your rage? You can borrow some of mine as I have plenty to spare. Let today be the day they screwed with the wrong people.

Your weapon is simple: 100 ounces out of the Comex warehouse bought when the paper guys beat it all to crap. Hold it and sell into the next rally in the cash market away from the Comex. Do it over and over again.

Take a stand please. It can get lonely out here from time to time.

The following is total nonsense and insanity according to Einstein’s description. The absolute best it can deliver is the bear market rally after the 1929 break, leading to the double dip depression and then on to the secondary (and more serious) market and phycological break of the awful 32 bottom.

All this strategy will do is spark the greatest inflation in the dollar’s history. Right now in reality, it is not worth a Continental.

You either fix the entire system, or there is no fix at all. This is why Obama’s team will never call me.

This is what a Canadian, Dr. Reuven Brenner, could do for them.

Dollar Rises Against Euro, Yen on Obama Plan for U.S. Stimulus
By Anchalee Worrachate and Stanley White

Jan. 5 (Bloomberg) — The dollar rose against the euro and the yen on speculation President-elect Barack Obama’s fiscal stimulus will help the U.S. economy recover from the recession.

The dollar climbed to the highest level in almost three weeks against the European currency and gained against 15 out of the 16 most actively traded counterparts monitored by Bloomberg. Obama crafted a package of infrastructure spending and tax cuts to create three million jobs. The euro fell after European Central Bank Vice President Lucas Papademos said further interest-rate cuts may be needed should inflation keep slowing.

“Obama’s stimulus package came in at a higher end of expectations, and is skewed more towards tax cuts than has been expected,” said Adam Cole, London-based head of global currency strategy at Royal Bank of Canada Ltd., the nation’s largest lender. “That’s positive for dollar sentiment. Moves might be exaggerated a bit because trading volumes in the market are still quite thin.”

The dollar strengthened to $1.3644 per euro at 7:02 a.m. in New York, from $1.3921 on Jan. 2. One dollar bought 93.32 yen, from 91.83 yen. The U.S. currency will strengthen to 98 yen by the end of June, according to Cole. It traded at $1.4515 to the British pound, from $1.4548.

More…

Obama Said to Push for Tax Cuts in Stimulus Plan (Update1)
By Brian Faler and Ryan J. Donmoyer

Jan. 5 (Bloomberg) — President-elect Barack Obama’s economic stimulus package will include hundreds of billions of dollars worth of tax breaks for individuals and businesses, according to a transition official and Democratic aides.

Obama is asking that tax cuts make up 40 percent of a stimulus package, the people say. The measure may be worth as much as $775 billion, a Democratic aide says, meaning tax cuts may constitute more than $300 billion of the legislation.

The dollar today rose to the highest level in almost three weeks against the euro and also surged against the yen on speculation that the Obama plan would help the U.S. economy recover from recession.

Making tax cuts such a large part of the stimulus may help win support from congressional Republicans. Senate Minority Leader Mitch McConnell, a Kentucky Republican, said his party would support an immediate middle-class tax cut as part of any stimulus package.

“Republicans, by and large, think tax relief is a great way to get money to people immediately,” McConnell said yesterday on ABC’s “This Week.”

More…

Click here to read about Dr. Brenner…