Posted at 5:15 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

Pakistan, a rolling disaster becoming visible.

The Washington Post recently said that if Pakistan won’t or can’t uproot its home grown terrorists groups, said Robert Kagan, the world would have to step in. The international community should declare parts of Pakistan, "ungovernable" and send troops to help the Pakistan government round up and kill the bad guys.

The article goes on to ask itself "would this violate sovereignty? Of course it will answers the author. He went on to declare that nations should not be able to declare sovereign rights when they cannot control territory from which terrorist attacks are launched.

That seems to me like a slippery slope into financial and geopolitical Armageddon when the nation under discussion is nuclear capable with delivery systems. Keep in mind the military and intelligence is pro-Taliban. It seems to me the first to battle is not the government but rather the military with plans predicated on intel.

This is not Iran, Iraq or Afghanistan that truthfully lacks world class teeth. They do not vaporize their invaders, they just practice the age old strategy of bury your weapons, all fall down, now when the invading nation ensconce themselves, get up, get your weapons and bleed the enemy slowly using ancient technology until the war drains the invading nation to death.

This bunch can throw nukes if they deem themselves to be facing a force beyond their ability to repulse by traditional means, considering it not help but rather invasion. The government that the Washington Post has deemed a non nation’s present government has said, "do not do that." We will consider your offer of help if executed as an invasion of our sovereign territory.

There will be an invasion of Pakistan soon, by someone supported by the USA, GB and Israel. That you can be sure of.

Pakistan ‘linked to 75% of all UK terror plots’, warns Gordon Brown
December 14, 2008

Sam Coates, Chief Political Correspondent, and Jeremy Page, South Asia Correspondent, in Islamabad

Gordon Brown demanded "action, not words" from Pakistan today, blaming Pakistani militants for last month’s attack on Mumbai and revealing that three quarters of the gravest terror plots under investigation in the UK had links to Pakistan.

Winding up a two-day tour of Afghanistan, India and Pakistan, the Prime Minister urged Asif Ali Zardari, Pakistan’s President, to "break the chain of terror" linking Islamist militants in Afghanistan and Pakistan to attempted terrorist attacks in Britain.

British military officials believe there are a "handful" of British militants fighting alongside the Taleban in Afghanistan, often entering the country through northern Pakistan, where al Qaeda and Taleban leaders are thought to be sheltering.

Officials also believe that there are currently around 30 major terrorist plots in the United Kingdom with 2,000 suspects being watched by police and the intelligence services.

"Three quarters of the most serious plots investigated by the British authorities have links to al-Qaeda in Pakistan," said Mr Brown in a press conference alongside Mr Zardari in the presidential palace in Islamabad. "The time has come for action, not words."

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Jim Sinclair’s Commentary

The financial problems are behind us? Not a chance. What OTC derivatives did not do, imploding earning and litigation will.

Wall Street shock as Goldman Sachs is expected to post losses of £1.35billion
By DAILY MAIL REPORTER
Last updated at 8:09 PM on 14th December 2008

As the shock waves of former Nasdaq chairman Bernard Madoff’s arrest over an alleged £33.5billion fraud continues to reverberate around Wall Street, dealers in New York are braced for yet more grief from the battered banking sector.

For the first time in a decade as a publicly listed company, Goldman Sachs is expected to report a loss for the fourth quarter tomorrow.

Analysts believe chief executive Lloyd Blankfein could post a loss of £1.35billion caused by further huge write-downs on the value of its investments and a fall in revenues as investment banking, sales and trading activity all take a further downturn.

The firm’s revenue for the first three quarters fell by almost 33 per cent from a year earlier, as investment banking fees dropped 26 per cent and trading and principle investment revenue slid 45 per cent.

Goldman, which converted into a bank-holding company in September to help it survive the global credit crisis, last month slashed about 3,200 jobs or one tenth of its staff.

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Jim Comments on President Elect Obama’s appointments:

There are two similarities pervading Obama’s appointees.

1. Harvard University
2. Intellectuals.

Therefore decisions made will be from the overeducated and lead to impractical programs and solutions following closely to a liberal manifesto.

There is a tendency when you are surrounded by what boils down to same university fraternity house to have formed a team of YES people.

 

Jim Sinclair’s Commentary

The good guys at GATA bring this to our attention

Trace Mayer: A problem with GLD and SLV ETFs
Submitted by cpowell on 08:25AM ET Sunday, December 14, 2008. Section: Daily Dispatches
11:20a ET Sunday, December 14, 2008

Dear Friend of GATA and Gold:

In an essay published yesterday, Trace Mayer, an accountant, lawyer, journalist, and proprietor of the Internet site RunToGold.com, has done a wonderful job exposing the weaknesses of gold and silver exchange-traded funds, as those weaknesses are acknowledged in their own prospectuses. Mayer observes, "There is no assurance that the ‘gold’ held in the ETFs is actually the same gold as defined under the periodic table."

Mayer’s essay is headlined "A Problem with GLD and SLV ETFs" and you can find it at Run To Gold here:

http://www.runtogold.com/2008/12/a-problem-with-gld-and-slv-etfs/

Posted at 5:13 PM (CST) by & filed under Jim's Mailbox.

Jim,

I would like to congratulate you and Peter about your article on hyper inflation.

I lived in Brazil and this is exactly what happened.

A Dragon named Inflation

I lived in Brazil during the 1960s and 70s, so I have an idea of what rampant, uncontrolled inflation can do. At its worst, the currency was losing about 30 to 40% of its value each month. This explains how 1 = 1 came to be 1 = 0.00000000000000001, or whatever. This page is supposed to give the reader an idea of what happens when you live where inflation is out of control. Please understand that in the last eight years, things (I mean the annual inflation rate) have been fairly good by Brazilian standards, even if the real (as Brazil’s currency is now called) is under a lot of pressure from many different areas (exports, government spending, foreign debt, etc…). This page looks back at life and money in Brazil in the last forty years or so.

The president’s monetary policy vs the dragon. Brazil humorists have a lot of fun with inflation, and the public is always skeptical of their ability to control the dragon. For some reason, inflation is often symbolized as a dragon, just as the income tax is a lion. Anyway, in the cartoon, the dragon is not impressed with the new real currency.

A high inflation rate means you do to bed with $100 in the bank (or in your pocket) and wake up with $98 or 99, and on the next day you have $96, without spending a penny (well, acentavo). It also means when you get paid, you immediately go to the market for groceries and/or stores to purchase any basic goods you may need. This page is about Brazil’s battle with the evil dragon viewed though it’s paper money .

For most of the early part of then 20th century, Brazil’s money was called Reis, meaning "kings". By the 1930s the standard denomination was Mil Reis meaning a thousand kings — that is alot of blue blood flowing on the market.

By 1942 the currency that devalued so much that the Vargas government instituted a monetary reform, changing the currency to cruzeiros (crosses) at a value of 1000 to 1. Twenty thousand reaisbank notes were stamped as twenty cruzeiros, as seen in the example here. Over the next fifty years, the poor stamp overlay machines were to stay busy. As you will notice on this page I have tried to find paper notes "stamped" (carimbadas) with the new values. These notes remained in circulation a few months until the new "official" notes with the new denominations became available.

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We don’t know when Hyperinflation will come to the US but it will come.

When you will start seeing prices of essential goods rising, this will be it. But people on the street shouldn’t trust the government inflation numbers! We just have to go regularly into the supermarket near us to find out as hyperinflation may well be worldwide.

By reading Peter’s Formula, I noticed that the vicious cycle is maintained by a weak government (see part 9 of the 10 steps) policy such as printing fiat money in unreasonable ways. In Brazil, in the 70’s, we had dumb government solutions such as price readjustment indexes.

In the US, Volcker with its strong monetary policy helped stop this vicious cycle in the 70’s by raising rates to unprecedented levels. Will Obama follow Volcker’s steps at one point of his presidential mandate? I don’t think so or maybe a long way down the road.

Thank you for all!
Best regards,
CIGA Christopher

Dear Christopher:

Thanks are to Peter, a man of rare perception, a true student of economic history and a man to be reckoned with. When introducing his economic committee, President Elect Obama said no less than six times that this group would disagree. The liberal economic policy will be followed with ever expanding Fiscal Stimulation along with both the Fed and Treasury continuing to bail out every major entity that falls.

Respectfully yours,
Jim

Posted at 11:04 PM (CST) by & filed under General Editorial.

Dear Friends,

This incisive article by Peter Shann takes us from the shock of the creation of more dollars than ever anticipated being ploughed into both financial and industrial concerns to the mechanics of how hyperinflation is created and why it is now unavoidable. All of this was caused by the implosion of the huge mountain of garbage paper, over the counter derivatives.

In terms of forward discounting markets, this could be marketwise tomorrow.

Farming is a credit-based business that has for months been discussed not in terms of farming products, but rather in the sense of its impact on demand in the market for critical products to the farming process. Primary focus has been aimed at South America but applies everywhere.

Grains and meats, as all edibles, certainly qualify as necessities to life. Electricity, heating oil, housing, and medicine are part of what is necessary for life, itself.

Dislocations in supply are easiest to understand when viewing today’s decision to support Motors from the US Treasury. There is still no clear answer if the suppliers to Motors are willing to do business as usual in terms of delivering goods for payment 45 days later. It seems as if supplier will not be happy with this traditional manner of doing business. It may be like beer suppliers to a questionable credit that is “cash on hand,” or no beer.

So here are two examples that will be repeated many times but in the same way as we move faster and faster toward the unseen CONSEQUENCES of a broader and ass backwards approach to the business of government and commerce. That is best understood as when you reward non-production and punish production. The result is ALWAYS non-production.

You would assume that extremely difficult business conditions would be accompanied by an oversupply of all kinds of goods and services, but hard logic and history prove otherwise.

Simply stated, both on the micro and macro level, the present credit lockup and lack of confidence between lender and borrower, between supplier and consumer, and eventually between international suppliers and the currency of the world’s major manufacturer of currency will be the process of why the present unprecedented air bombing of cash (US dollars) will result in hyperinflation as unprecedented as is its cause.

Do some introspection. Does a supply of essential goods seem attractive to you? If the answer is YES here are the mechanics of what you have intuitively understood

Read the following slowly with your major focus on the steps numbered one through ten.

We will name this Peter’s Formula, the natural outcome of Jim’s Formula.

Jim

The roots of hyperinflation
I have written the following because I do not think the dangers of hyperinflation and currency collapse are understood;
Peter Shann

The most widely accepted view is that hyperinflation and monetary collapse results from governments introducing large amounts of fiat money into the economy, Wikipedia comments;

"The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run"

This explanation is superficial and doesn’t provide answers as to why governments would in the first instance "massively and rapidly increase the amount of money" nor why they would.

feel compelled to continue with this as inflation increases by factors of thousands of percent and in some extreme instances print banknote in denominations of 100,000,000,000,000 currency units, it also fails to explain why newly issued money is not primarily invested in asset class goods or why goods that can easily be replicated, as can most essential consumables, be often subject to the greatest price inflation.

A prerequisite of hyperinflation and monetary collapse is that a disruption in the availability of essential goods occurs, today this could happen as a result of past reliance on expanding credit and fiat money temporally facilitating dependency on low cost imported goods many of which now feed primary needs leading to a commensurate loss of home production capacity with an inherent delay to the medium-term should such reengagement with manufacture become necessary as it would in the event of off shore suppliers losing confidence in reciprocal worth of monetary instruments offered in exchange for goods, and or shortage of essential goods may arise as a result of natural correction occurring, by way of example from the collapse of speculation driven credit markets and or as a result of collateral damage to the production cycle caused by inappropriate governmental action in further increasing money and credit supplies in attempt to drive a spontaneously occurring and necessary correction back in the direction of instability and in so doing distorting essential work ethics and disincentivising investment in the production cycle,

In my view the most probable sequence of events resulting in hyperinflation and monetary collapse is as follows:

1. A broad based shortage of goods that are thought essential develops and this is not relieved in time to satisfy demand.

2. Consumers trying to acquire essential goods that they believe are in short supply become fearful and are prepared to pay increasingly higher prices and stockpile these goods further increasing shortages and accelerating prices as a sellers market develops.

3. Prices rise for essential goods in short supply as an increasing proportion of the money supply circulates in these goods, also with increasing velocity and as most of these goods are consumables with high turnover upward re pricing quickly occurs.

4. The proportion of available money circulating in goods that are perceived as essential increases and the demand for less essential goods diminishes I.e essentials become disproportionately more expensive than the norm against non essential goods displacing money towards the goods most in demand further fuelling inflation,

5. The shortage of essential goods accelerates as manufactures increasingly focus on short term survival, longer term risk is avoided and investment in the production cycle is reduced accelerating 1.

6. The normal balance of demand for all goods increasingly prefers those goods required to satisfy primary needs and people engaged in making and supplying less immediately essential or non essential goods become unemployed who then pressures governments accelerating condition 9.

7. Eventually goods not immediately required but non the less essential are needed and rapidly increase in price as they also become in short supply.

8. Consumers with least money first find it increasingly difficult to secure essential goods, become frightened and are forced to allocate greater proportions of their money on essential goods and demand greater income,

9. The demand for money forced by need and fear becomes irresistible so governments feel insecure and provide increasing amounts of fiat new money,

10. Consumers first to spend the new money see some value but soon as this new money is distributed and its value is lost, the velocity of money also accelerates as people rapidly exchange money for goods, wealth is seen as best protected when stored as goods rather than cash further increasing price and reinforcing condition 9,

Posted at 6:30 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

This article puts focus on the shocking exposure of a NASDAQ trading house’s Boss running a massive Ponzi scheme.

I firmly believe the scams in gold, once disclosed, are going to set your hair on fire.

These will take the form of no gold gold certificates, paper gold rather than bullion confirmed as bullion to simply taking your money, sending you a confirmation without anything whatsoever behind it.

Dr. Fekete’s warning of gold scams don’t even scratch the surface of what I assure you will surface.

Just because someone says or writes what you want to believe, don’t for a second assume the author has ethics when there is a request for your money or an offering of a gold/silver deal.

Bernie Madoff’s alleged $50bn fraud may be just a foretaste of what’s to come
First come the losses and the stupidities committed by bankers working for their own self-interest.
By Rob Cox, breakingviews.com
Last Updated: 5:47PM GMT 12 Dec 2008

Then come the rogue traders, who are unable to ‘fess up on market bets gone wrong. The last to arrive is the "bezzle".

That was economist JK Galbraith’s word for the outright frauds built up when markets are good. These can be kept hidden for as long as the lies hold up. But the truth will out.

The first big outing in the current financial crisis is an alleged scam that may cost investors as much as $50bn. It was committed, according to a US criminal indictment, by a highly respected member of the financial community, a one-time Nasdaq executive and a legendary trader in New York.

Bernard Madoff is accused of orchestrating a multi-year fraud in which generous returns were manufactured for sophisticated investors. The technique was the usual Ponzi scheme. Old investors were paid off by the new funds lured into to Madoff’s art-laden New York headquarters.

Losses of $50bn would probably make Madoff the biggest single fraudster in history. But in fairness, such an accomplishment shouldn’t come as a great surprise. In Galbraith’s model of a speculative cycle, good times spawn the excess and corruption which eventually bring them to end. The last good times were especially profitable, fertilising the ground for especially large frauds.

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Jim Sinclair’s Commentary

Scotty beam me up please.

This world is coated with abhorrent stinking slime, and is terminally disintegrating.

Fed Refuses to Disclose Recipients of $2 Trillion in Lending
By Mark Pittman

Dec. 12 (Bloomberg) — The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.

Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.

The Fed responded Dec. 8, saying it’s allowed to withhold internal memos as well as information about trade secrets and commercial information. The institution confirmed that a records search found 231 pages of documents pertaining to some of the requests.

“If they told us what they held, we would know the potential losses that the government may take and that’s what they don’t want us to know,” said Carlos Mendez, who oversees about $14 billion at New York-based ICP Capital LLC.

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Jim Sinclair’s Commentary

I always suspected this guy was hiding something. Actually this is a serious article that nails the foundational problem now being thoroughly assaulted by instant karma.

Blame the Bailouts on Mister Rogers?
By Elizabeth MacDonald

mr_rogers1-150x150 - 20081212_175403 Mister Fred Rogers, the children’s TV star, who, beginning in 1968, started every show telling us that we were “special” just the way we were.

Blame all of those preening child-rearing experts who encouraged an excruciatingly costly culture of entitlement, a culture of narcissism, of excessive self-righteous self-indulgence, where generations grew up believing they were entitled to follow their own codes of conduct, a chronic “me first, I get what’s mine first” attitude–to the point where one survey shows one in three teenagers expect to be famous.

Better yet, blame the bailouts on everyone who forgot the most important part of the Mister Rogers’ Neighborhood show, a willful ignorance that has led to a mass dereliction of civic duty, of civic vision–Rogers’ emphasis on “neighborhood.”

Blame it on a post World War II culture of “me-ism,” of individuality over community, of “I’m special, you owe me,” a culture of anything goes in this Age of Aquarius.

A mindset which has resulted in more than half of the country’s annual $14 tn in GDP, $7.8 tn, a quantum leap in fiscal debt, now being committed to bail out the economy.

Concrete proof that equal opportunity means everyone will have a fair chance at being incompetent, to quote Laurence J. Peter, author of the “Peter Principle.”

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Jim Sinclair’s Commentary

25 down, 2075+ to go.

Georgia, Texas Banks Seized as Foreclosures Push Failures to 25
By Margaret Chadbourn and Alison Vekshin

Dec. 12 (Bloomberg) — Georgia and Texas banks with $544 million in deposits were closed by state regulators today, pushing the toll of failures to 25 as mortgage delinquencies and home foreclosures surge to records during a deepening recession.

Haven Trust Bank of Duluth, Georgia, was seized and sold by the Federal Deposit Insurance Corp. to BB&T Corp. of Winston- Salem, North Carolina, which will reopen four offices northeast of Atlanta on Dec. 15 as branches, the FDIC said. Sanderson State Bank was shut by Texas regulators and its assets were sold to Pecos County State Bank of Fort Stockton, which will open Sanderson’s southwest Texas office as a branch on Dec. 15.

Acquisitions by BB&T, the fifth-best performing stock in the KBW Bank Index this year, and Pecos County were “the ‘least costly’ resolution for the FDIC’s deposit insurance fund,” the Washington-based FDIC said in a statement.

Regulators have closed the most banks in 15 years, and the annual total now exceeds the combined toll for the previous six years, with the collapses of Washington Mutual Inc. and IndyMac Bancorp Inc. among the biggest in history. The U.S. entered a recession a year ago and President-elect Barack Obama on Dec. 7 said the slump will worsen before a recovery begins.

BB&T will buy about $55 million of Haven’s $572 million in assets and pay $112,000 for the failed bank’s $515 million in deposits, the FDIC said. The agency will retain the remaining assets “for later disposition.” The deposit insurance fund, supported by fees on insured banks, will pay an estimated $200 million, the agency said.

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Jim Sinclair’s Commentary

This might make India feel good but it is a terrible implications for the world and serious risks for Israel.

You can be sure if there is an Armageddon it lives in Pakistan.

Israeli experts help India prepare commando raids into Pakistan
DEBKAfile Exclusive Report
December 6, 2008, 11:45 AM (GMT+02:00)

New Delhi has asked Jerusalem to assist in the operational and intelligence planning of Indian commando cross-border strikes against Islamist terrorist havens in Pakistan – including al Qaeda, Indian counter-terror sources report.

The Indian government’s decision to embark on these in-and-out incursions in reprisal for the Mumbai outrage of Nov. 26-29 was first revealed in DEBKA-Net-Weekly 375 published Dec. 4 (Indian Retaliatory Raids inside Pakistan Impending).

DEBKAfile adds: Israel is willing to help the Indians carry out punitive forays into Pakistan because it has its own scores to settle for the brutal murder of six Israelis in Mumbai’s Chabad Center by the Islamist terrorists and for the Pakistani Inter-Services Intelligence (ISI) agency’s hand in the atrocity.

Security sources in New Delhi disclosed Saturday, Dec. 6, that ISI officers actively trained the terrorists on military lines and selected their targets, including two big hotels and the Jewish-Israeli center.

Indian sources told DEBKAfile that Israel was asked for assistance because its special undercover forces were long seasoned in plotting and executing reprisals for terrorist attacks; above all, they were expert in getting away after covert operations without leaving a trail. New Delhi wants its commando operations in Pakistan to be stealthy and focused, and does not propose to admit responsibility.

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Jim Sinclair’s Commentary

Most? I would say all. This is because of the interdependency of every regional bank and regional area on the spider web of financial products spun by the money center and investment banks, all without limit or any concern of the consequences to others.

Jim Rogers calls most big U.S. banks "bankrupt"
Thu Dec 11, 2008 1:53pm EST
By Jonathan Stempel

NEW YORK (Reuters) – Jim Rogers, one of the world’s most prominent international investors, on Thursday called most of the largest U.S. banks "totally bankrupt," and said government efforts to fix the sector are wrongheaded.

Speaking by teleconference at the Reuters Investment Outlook 2009 Summit, the co-founder with George Soros of the Quantum Fund, said the government’s $700 billion rescue package for the sector doesn’t address how banks manage their balance sheets, and instead rewards weaker lenders with new capital.

Dozens of banks have won infusions from the Troubled Asset Relief Program created in early October, just after the Sept 15 bankruptcy filing by Lehman Brothers Holdings Inc (LEHMQ.PK: Quote, Profile, Research, Stock Buzz). Some of the funds are being used for acquisitions.

"Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt," said Rogers, who is now a private investor.

"What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent," he said. "What’s happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics."

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Posted at 3:54 PM (CST) by & filed under Guild Investment, Jim's Mailbox.

Dear Jim,

The president of Guild Investment Management, Inc. Tony Danaher, forwarded this to me today.

David Rosenberg is Merrill Lynch’s chief US economist.

David Rosenberg had some interesting comments: "Port activity in the United States is imploding — inbound cargo at the Port of L.A. slipped 9.7% YoY and was down 13.6% at Long Beach; outbound shipments were even weaker in a sign of ever-weakening domestic demand abroad with traffic down 12.8% Year on Year at the Port of LA and -23.6% at Long Beach. And get this — the only activity is in empty vessels — up 0.2% Year on Year in November. Global recessions beget global trade protectionism, which in turn begets global geopolitical strains, which finally begets investor buying of "safe havens" like gold (which looks on the precipice of breaking out to the upside again).

Respectfully yours,
Monty Guild
www.GuildInvestment.com

Posted at 3:53 PM (CST) by & filed under General Editorial, Guild Investment.

"Nothing will unnerve the paper gold shorts more quickly and do more to undercut their confidence than to strip them of the real metal and force them to come up with more hard gold bullion to make good on deliveries. "Stand and Deliver or Go Home" should be the rallying cry of the gold longs to the paper gold shorts." –Trader Dan Norcini

Dear CIGAs,

Hey all of you Americans. This movie is coming soon to a country near you. Except the headline will read "People Hoard Gold, Jewelry and Other Assets as US Dollar Plunges." In my opinion, it is just a matter of time.

Respectfully yours,
Monty Guild

Russians Buy Jewelry, Hoard Dollars as Ruble Plunges
By Emma O’Brien and William Mauldin

Dec. 11 (Bloomberg) — Moscow resident Tima Kulikov banked on the full faith and credit of the U.S. government, not the Kremlin, when he sold his biggest asset for cash.

The 31-year-old director of a social networking Web site initially agreed to sell his apartment for rubles, then cringed at the thought of the currency weakening as it sat in a lockbox pending settlement of the contract. It wasn’t until the buyer showed up with $250,000 stacked in old mobile-phone boxes and stuffed in his pockets that Kulikov closed the deal.

“The exchange rate we agreed on wasn’t great, but I did it because the money’s going to lie there for a month,” Kulikov said. “Put it this way, the ruble’s more likely to have problems than the dollar.”

Russians are shifting their cash into foreign currencies and buying things they don’t need as the economy stalls and the central bank weakens its defense of the ruble, signaling a larger devaluation may be on the way. The currency has fallen 16 percent against the dollar since August, when Russia’s invasion of neighboring Georgia helped spur investors to pull almost $200 billion out of the country, according to BNP Paribas SA.

The central bank today expanded the ruble’s trading band against a basket of dollars and euros, allowing it to drop 0.8 percent, said a spokesman who declined to be identified on bank policy.

With the specter of the 1998 debt default and devaluation in mind, Russians withdrew 355 billion rubles ($13 billion), or 6 percent of all savings, from their accounts in October, the most since the central bank started posting the data two years ago. Foreign-currency deposits rose 11 percent.

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Posted at 11:03 PM (CST) by & filed under Trader Dan Norcini.

Dear Friends,

Once again another week passes and once again foreign Central Banks unload US Agency debt. This week they dropped another $17 billion worth, bringing the total of agency debt that they have unloaded since the credit crisis began in July of this year to an almost unfathomable $138 billion.

Were it not for the fact that they were buying US Treasuries in its place apparently, the bottom would have fallen out of the Dollar even sooner, repatriation from abroad notwithstanding. Look at the chart of the Treasury holdings and ask yourself if it the least bit difficult to see why we have a bubble forming in the Treasury market.

Click here to view this week’s Custodial Holdings charts with commentary from Trader Dan Norcini