Posted at 6:20 AM (CST) by & filed under JSMineset Editor.

Dear CIGAs,

Thank you to everyone who has signed up on our Compendium Volume 2 Pre-Order list. We have had a huge number of requests and will be offering those who signed up an opportunity to purchase the set before it goes on sale to the rest of our readers.

If you have emailed jscompendium@shaw.ca you are on the Pre-Order List. If you haven’t yet signed up, check out the details of how to do so at the following link:

http://jsmineset.com/index.php/2008/12/29/jsmineset-compendium-volume-2-pre-order-list/

For those on the list we expect the Compendium Volume 2 to be available by the end of the month. Pre-Orders will get priority shipping before everyone else. A VERY LIMITED reprint of Compendium Volume 1 will also be available for those of you new to the site.

Thank you all for your continued support! You all help to make this site what it is.

Best regards,
Dan Duval
JSMineset Editor

Posted at 6:08 AM (CST) by & filed under General Editorial.

Dear CIGAs,

They say it cannot occur HERE.
They say it cannot happen NOW.
They Are SO wrong. It is happening here and now!

German Papiermark
From Wikipedia, the free encyclopedia
http://en.wikipedia.org/wiki/Papiermark

The name Papiermark (English: paper mark) is applied to the German currency from the point in 1914 when the link between the Mark and gold was abandoned, due to the outbreak of the First World War. In particular, the name is used for the banknotes issued during the hyperinflation in Germany of 1922 and especially 1923, which was a result of the Germans’ decision to pay their war debt by printing banknotes.

Jim Sinclair’s Commentary

All you need to do is erase the words above “pay their war debt” and replace with the phrases, “compensate failed OTC derivatives and their manufacturers,” and you have the Papierdollar with all the same results both present and forthcoming.

Excerpts from Wikipedia’s article on Hyperinflation:
http://en.wikipedia.org/wiki/Hyperinflation

1. Since hyperinflation is visible as a monetary effect, models of hyperinflation center on the demand for money. Economists see both a rapid increase in the money supply and an increase in the velocity of money. Either one or both of these encourage inflation and hyperinflation. A dramatic increase in the velocity of money as the cause of hyperinflation is central to the "crisis of confidence" model of hyperinflation, where the risk premium that sellers demand for the paper currency over the nominal value grows rapidly.

The second theory is that there is first a radical increase in the amount of circulating medium, which can be called the "monetary model" of hyperinflation.

In either model, the second effect then follows from the first — either too little confidence forcing an increase in the money supply, or too much money destroying confidence.

2. “Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:

* Outright lying in official statistics such as money supply, inflation or reserves.
* Suppression of publication of money supply statistics, or inflation indices.
* Price and wage controls.
* Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or something similar.
* Adjusting the components of the Consumer price index, to remove those items whose prices are rising the fastest.

None of these actions address the root causes of inflation, and in fact, if discovered, tend to further undermine trust in the currency”

3. In the confidence model, some event, or series of events, such as defeats in battle, or a run on stocks of the specie which back a currency, removes the belief that the authority issuing the money will remain solvent — whether a bank or a government. Because people do not want to hold notes that may become valueless, they want to spend them in preference to holding notes that will lose value. Sellers, realizing that there is a higher risk for the currency, demand a greater and greater premium over the original value.

Under this model, the method of ending hyperinflation is to change the backing of the currency — often by issuing a completely new one. War is one commonly cited cause of crisis of confidence, particularly losing in a war, as occurred during Napoleonic Vienna, and capital flight, sometimes because of "contagion" is another. In this view, the increase in the circulating medium is the result of the government attempting to buy time without coming to terms with the root cause of the lack of confidence itself.

4. Since hyperinflation is visible as a monetary effect, models of hyperinflation center on the demand for money. Economists see both a rapid increase in the money supply and an increase in the velocity of money. Either one or both of these encourage inflation and hyperinflation. A dramatic increase in the velocity of money as the cause of hyperinflation is central to the "crisis of confidence" model of hyperinflation, where the risk premium that sellers demand for the paper currency over the nominal value grows rapidly. The second theory is that there is first a radical increase in the amount of circulating medium, which can be called the "monetary model" of hyperinflation. In either model, the second effect then follows from the first — either too little confidence forcing an increase in the money supply, or too much money destroying confidence.

In the confidence model, some event, or series of events, such as defeats in battle, or a run on stocks of the specie which back a currency, removes the belief that the authority issuing the money will remain solvent — whether a bank or a government. Because people do not want to hold notes that may become valueless, they want to spend them in preference to holding notes that will lose value. Sellers, realizing that there is a higher risk for the currency, demand a greater and greater premium over the original value. Under this model, the method of ending hyperinflation is to change the backing of the currency — often by issuing a completely new one. War is one commonly cited cause of crisis of confidence, particularly losing in a war, as occurred during Napoleonic Vienna, and capital flight, sometimes because of "contagion" is another. In this view, the increase in the circulating medium is the result of the government attempting to buy time without coming to terms with the root cause of the lack of confidence itself.

In the monetary model, hyperinflation is a positive feedback cycle of rapid monetary expansion. It has the same cause as all other inflation: money-issuing bodies, central or otherwise, produce currency to pay spiraling costs, often from lax fiscal policy, or the mounting costs of warfare. When businesspeople perceive that the issuer is committed to a policy of rapid currency expansion, they mark up prices to cover the expected decay in the currency’s value. The issuer must then accelerate its expansion to cover these prices, which pushes the currency value down even faster than before. According to this model the issuer cannot "win" and the only solution is to abruptly stop expanding the currency. Unfortunately, the end of expansion can cause a severe financial shock to those using the currency as expectations are suddenly adjusted. This policy, combined with reductions of pensions, wages, and government outlays, formed part of the Washington consensus of the 1990s.

Whatever the cause, hyperinflation involves both the supply and velocity of money. Which comes first is a matter of debate, and there may be no universal story that applies to all cases. But once the hyperinflation is established, the pattern of increasing the money stock, by whichever agencies are allowed to do so, is universal. Because this practice increases the supply of currency without any matching increase in demand for it, the price of the currency, that is the exchange rate, naturally falls relative to other currencies. Inflation becomes hyperinflation when the increase in money supply turns specific areas of pricing power into a general frenzy of spending quickly before money becomes worthless. The purchasing power of the currency drops so rapidly that holding cash for even a day is an unacceptable loss of purchasing power. As a result, no one holds currency, which increases the velocity of money, and worsens the crisis.

That is, rapidly rising prices undermine money’s role as a store of value, so that people try to spend it on real goods or services as quickly as possible. Thus, the monetary model predicts that the velocity of money will rise endogenously as a result of the excessive increase in the money supply. At the point when ordinary purchases are affected by inflation pressures, hyperinflation is out of control, in the sense that ordinary policy mechanisms, such as increasing reserve requirements, raising interest rates or cutting government spending will all be responded to by shifting away from the rapidly dwindling currency and towards other means of exchange.

During a period of hyperinflation, bank runs, and loans for 24-hour periods, switching to alternate currencies, the return to use of gold or silver or even barter becomes common. Many of the people who hoard gold today expect hyperinflation, and are hedging against it by holding specie. There may also be extensive capital flight or flight to a "hard" currency such as the U.S. dollar. This is sometimes met with capital controls, an idea which has swung from standard, to anathema, and back into semi-respectability. All of this constitutes an economy, which is operating in an "abnormal" way, which may lead to decreases in real production. If so, that intensifies the hyperinflation, since it means that the amount of goods in "too much money chasing too few goods" formulation is also reduced. This is also part of the vicious circle of hyperinflation.

Once the vicious circle of hyperinflation has been ignited, dramatic policy means are almost always required; simply raising interest rates is insufficient. Bolivia, for example, underwent a period of hyperinflation in 1985, where prices increased 12,000% in the space of less than a year. The government raised the price of gasoline, which it had been selling at a huge loss to quiet popular discontent, and the hyperinflation came to a halt almost immediately, since it was able to bring in hard currency by selling its oil abroad. The crisis of confidence ended, and people returned deposits to banks. The German hyperinflation of the 1920s was ended by producing a currency based on assets loaned against by banks, called the Rentenmark. Hyperinflation often ends when a civil conflict ends with one side winning. Although wage and price controls are sometimes used to control or prevent inflation, no episode of hyperinflation has been ended by the use of price controls alone. However, wage and price controls have sometimes been part of the mix of policies used to halt hyperinflation.

Hyperinflation and the currency

In times of hyperinflation, gold is a store of value whose value cannot be printed out of existence.

As noted, in countries experiencing hyperinflation, the central bank often prints money in larger and larger denominations as the smaller denomination notes become worthless. This can result in the production of some interesting banknotes, including those denominated in amounts of 1,000,000,000 or more.

* By late 1923, the Weimar Republic of Germany was issuing fifty-million Mark banknotes and postage stamps with a face value of fifty billion Mark. The highest value banknote issued by the Weimar government’s Reichsbank had a face value of 100 trillion Mark (100,000,000,000,000; 100 billion on the long scale).[6] [7]. One of the firms printing these notes submitted an invoice for the work to the Reichsbank for 32,776,899,763,734,490,417.05 (3.28×1019, or 33 quintillion) Marks.[8]

* The largest denomination banknote ever officially issued for circulation was in 1946 by the Hungarian National Bank for the amount of 100 quintillion pengő (100,000,000,000,000,000,000, or 1020; 100 trillion on the long scale). image (There was even a banknote worth 10 times more, i.e. 1021 pengő, printed, but not issued image.) The banknotes however didn’t depict the number, making the 500,000,000,000 Yugoslav dinar banknote the world’s leader when it comes to depicted zeros on banknotes.

* The Z$100 billion agro cheque, issued in Zimbabwe on July 21, 2008, shares the record for depicted zeroes (11) with the 500 billion Yugoslav dinar banknote.

* The Post-WWII hyperinflation of Hungary holds the record for the most extreme monthly inflation rate ever — 41,900,000,000,000,000% (4.19 × 1016%) for July, 1946, amounting to prices doubling every thirteen and one half hours.

One way to avoid the use of large numbers is by declaring a new unit of currency (an example being, instead of 10,000,000,000 Dollars, a bank might set 1 new dollar = 1,000,000,000 old dollars, so the new note would read "10 new dollars".) An example of this would be Turkey’s revaluation of the Lira on January 1, 2005, when the old Turkish lira (TRL) was converted to the New Turkish lira (YTL) at a rate of 1,000,000 old to 1 new Turkish Lira. While this does not lessen the actual value of a currency, it is called redenomination or revaluation and also happens over time in countries with standard inflation levels. During hyperinflation, currency inflation happens so quickly that bills reach large numbers before revaluation.

Some banknotes were stamped to indicate changes of denomination. This is because it would take too long to print new notes. By time the new notes would be printed, they would be obsolete (that is, they would be of too low a denomination to be useful).

Metallic coins were rapid casualties of hyperinflation, as the scrap value of metal enormously exceeded the face value. Massive amounts of coinage were melted down, usually illicitly, and exported for hard currency.

Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:

* Outright lying in official statistics such as money supply, inflation or reserves.
* Suppression of publication of money supply statistics, or inflation indices.
* Price and wage controls.
* Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or something similar.
* Adjusting the components of the Consumer price index, to remove those items whose prices are rising the fastest.

None of these actions address the root causes of inflation, and in fact, if discovered, tend to further undermine trust in the currency, causing further increases in inflation. Price controls will generally result in hoarding and extremely high demand for the controlled goods, resulting in shortages and disruptions of the supply chain. Products available to consumers may diminish or disappear as businesses no longer find it sufficiently profitable (or may be operating at a loss) to continue producing and/or distributing such goods, further exacerbating the problem.

More…

Posted at 5:51 AM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

Where is Paul who photo opted during the election as his Right Hand Man?

Obama Warns of Prospect for Trillion-Dollar Deficits
By JEFF ZELENY and EDMUND L. ANDREWS
Published: January 6, 2009

06obama-600 - 20090107_001923

WASHINGTON — President-elect Barack Obama on Tuesday braced Americans for the unparalleled prospect of “trillion-dollar deficits for years to come,” a stark assessment of the budgetary outlook that he said would force his administration to impose tighter fiscal discipline on the government.

Mr. Obama sought to distinguish between the need to run what is likely to be record-setting deficits for several years and the necessity to begin bringing them down markedly in subsequent years. Even as he prepares a stimulus plan that is expected to total nearly $800 billion in new spending and tax cuts over the next two years, he said he would make sure the money was wisely spent, and he pledged to work with Congress to enact spending controls and efficiency measures throughout the federal budget.

“We’re not going to be able to expect the American people to support this critical effort unless we take extraordinary steps to ensure that the investments are made wisely and managed well,” Mr. Obama said, speaking about the dire fiscal outlook after meeting with his economic team for a second straight day.

In his most explicit language on the subject since winning the election, Mr. Obama sought to reassure lawmakers and the financial markets that he was aware of the long-term dangers of running huge deficits and would take steps to limit and eventually reduce them.

Big deficits force the government to borrow more money, saddling future generations with large financial burdens and leaving the nation reliant on foreign governments and other big investors to lend cash. The problem is even more acute now because credit markets, which in recent months have made it much harder and more expensive for businesses and individuals to borrow, could be further strained by financing a huge government deficit.

On Wednesday, Mr. Obama plans to name a chief performance officer with the task of finding government efficiencies. He has chosen Nancy Killefer, who is director of McKinsey & Company, a management consulting firm, and was an assistant secretary of the Treasury in the Clinton administration. The Congressional Budget Office will also release its latest budget estimates, providing the first official predictions of the shortfalls tied to the economic slowdown and the fallen financial markets.

More…

Posted at 5:49 AM (CST) by & filed under General Editorial.

Dear CIGAs,

The following article is brought to you by CIGA Greg Hunter.

The Madoff Sideshow
By Greg Hunter 1/7/09

A friend of mine, who is a crack investigative producer, just got a gig with a major network. His new job will be to cover the Madoff story. There is no doubt this is a big story and in the press been called the “crime of the century.” Madoff is a self proclaimed fraudster who puts a face on the Wall Street “banksters” as in gangsters with brief cases instead of Tommy Guns. But for most Americans this story will be nothing more than tragic theatre. This story’s outcome will not matter to those in or headed for financial ruin.

The real story is what’s going on over at the Treasury, Federal Reserve and Congress. This trio has already spent, “loaned” or committed 8.5 trillion dollars to the economic problems plaguing our country. It appears the carnival of money printing is nowhere near ending. Now, there is even talk of another government bailout for the people who were ripped off by Madoff. This plan proposes to recapitalize SIPC, the Securities Investor Protection Corporation, with 15 billion dollars to augment its paltry 1.5 billion dollar insurance pool to protect investors. I guess 1.5 billion does not go very far when the pool of cheated customers is 50 billion dollars deep. Where do all these bailouts stop? America, in my view, has gone from a capitalistic society to bailout nation in little more than a year.

The Federal Reserve is in the process of bailing out the nation through a series of “lending facilities.” The TAF, TSLF, MMIFF, TALF and PDCF are the acronyms that are funnelling money to everything from banks to brokers to money market funds and even select hedge funds. None of these “lending facilities” were around little more than a year ago. All of this bailout activity adds up to more than 2 trillion dollars and is being done in secret without the public knowing who gets money for what! The latest facility to be added to the bailout bucket is provided by the Treasury and is called the TIP or Targeted Investment Program. This one is for “Citi-style” rescue programs. The government is clearly ready to bail out just about any business that issues a W-2.

Add all these “programs and lending facilities” together with the bailout of GM, Chrysler, AIG, the monetization of billions of mortgage debt from bankrupt Fannie Mae and Freddie Mac, along with the upcoming Obama stimulus package, and some people are getting worried about a little prosperity killer called inflation. In a few years, most people will not remember the Madoff story but will be living or surviving some pretty big price increases in just about everything they consume. In the end, it will all come down to a crisis in the dollar because just like Madoff it will no longer be trusted.

There is only one alternative to the dollar
By David Hale
Published: January 5 2009 19:01 | Last updated: January 5 2009 19:01

The great challenge confronting the foreign exchange market at the start of 2009 is finding a good alternative to the US dollar. One of the ironies of market events during 2008 was that the US financial crisis produced a flight to safety in the dollar. The dollar erged triumphant from a financial debacle that centred on $1,300bn (€960bn, £890bn) of subprime US mortgage loans. The fallout has triggered a $32,000bn decline in global stock market capitalisation and driven all the Group of Seven leading industrialised countries into recession.

The dollar slumped against the euro during the final weeks of 2008 but fears about the financial system still drove US Treasury yields down to zero on three-month paper and less than 2.1 per cent on 10-year notes. This fear factor is likely to sustain demand for the dollar during the early months of 2009.

There is not now a clear alternative to the dollar because all big economies have slid into recession. Real gross domestic product could contract by 1.5 per cent in both the US and Europe during 2009 and by as much as 2.5 per cent in Japan. The decline in world trade and commodity prices will also reduce significantly the growth rates of the emerging market economies. South Korea and Taiwan are already in severe slumps. The growth rate of China could halve.

The US economy could be the first to emerge from recession this year because it appears to be headed for a far more aggressive macroeconomic stimulus programme than any other country. Barack Obama’s administration will announce a $700bn-$800bn multi-year fiscal package focusing on cuts in payroll taxes, aid to state and local governments and infrastructure investment. The Federal Reserve is also engaging in a programme of unprecedented monetary stimulus. It has slashed its core lending rate to zero and tripled the size of its balance sheet since August. Ben Bernanke, the Fed chairman, has also stated his willingness to engage in further large liquidity injections to buy mortgages, consumer loans and government securities. Mortgage rates have recently eased to 5.1 per cent after remaining above 6 per cent during the past year.

The European response to the recession has been far less aggressive. The European Central Bank is still under the influence of the Bundesbank and will ease monetary policy far more gradually than the Fed. Some Bundesbankers are opposed to cutting interest rates at this month’s meeting. The ECB policy could produce political tensions because interest rate spreads on Greek and Spanish bonds have risen sharply compared with German bonds. Japan’s government has been announcing modest fiscal policy changes but it cannot act decisively since it no longer controls the upper house of the Diet. And an election, before September, could produce a change of government.

More…

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

Dear CIGAs,

It is difficult to get an accurate read on today’s price action because it was dominated by front running of index fund rebalancing to conform to changes being made in some of the major commodity indices. Copper was up 7% at one time today based solely on a heavier weighting of the metal in two of the indices. There was no fundamental news that I was aware of but that does not matter for these players – they have to take on positions in accordance to the percentage weightings that they are given in the index. If the composition of the index is raised to 6% from 4% in copper for example, then the funds have to take an additional 2% of their monies and stick it in a long copper position, regardless of what the fundamentals might or might not be. If the composition of gold is lowered from 8% to 6%, then they have no choice but to sell enough gold long positions to bring their holdings back down to a 6% weighting in the yellow metal. Obviously, the makeup of these indices determines a great deal of the price action across the various commodity markets.

Frankly I find the idea of reducing the weighting of gold in the indices for 2009 to be very odd. Gold was one of the very few items that showed a gain for 2008 – yet its weighting is lowered?  What we see in the US equity indices is the exact opposite. Poor performing stocks are gotten rid of out of the index as quickly as possible while the best performing stocks are added to the index. That way the bureaucrats can attempt to keep the index levitating. Yet here we have a case where the index managers made a deliberate decision to lower the weighting of the best performing commodity for all of 2008. Let’s see someone come up with a rational explanation for this – don’t hold your breath because there is none.

Needless to say, with all this as a backdrop, gold was promptly clocked at the opening of pit session trading at the Comex as yesterday’s weakness coupled with Dollar strength brought in more selling overnight which continued into today’s session. The metal traded down into the 20 day moving average before rebounding sharply as dip buyers surfaced in a large way especially late in the morning. The spike well off the session low has to be encouraging for the friends of gold for that occurred even with frontrunning of upcoming forced selling in gold by way of index fund rebalancing. The recovery in the Euro from its worst levels did not hurt matters any for gold bulls.

To build on today’s nice spike we need to see a higher close tomorrow. That will inspire confidence among the gold bulls that the reaction is finished and unnerve some of the weaker-handed shorts whose covering can be expected to push prices back closer to $880 once again. I am still a bit leery about the upcoming index fund rebalancing as that will commence in a couple of days time so we need to be alert to actions coming off of that front.

Technically gold will need to maintain its footing above the $825- $830 area to keep the technical chart picture from deteriorating. That should prove to be a strong area of support if this uptrend is going to continue into the new year. The fact that it managed to close back above psychological round number support at $850 is very friendly. Resistance still lies over head at the $880level which is clearly being defended by our “friends”, the bullion banks who work for their monetary masters in a mutually symbiotic relationship (don’t you love the free markets we have here in the USA). The 10 day moving average is still moving upwards which is a positive  and  gold’s ability to recapture that level in today’s spike action no doubt unnerved many of the shorts whose covering near the close could easily be observed from the near vertical rise in the last 5 minutes of pit session trading.

Again, those who are sick and tired of playing in the private sand box of the bullion banks and having their castles kicked over need to learn new tactics. You cannot expect different results if you are going to employ the same worn out strategy again and again. Take the physical metal OUT OF THE COMEX WAREHOUSES if you want to put an end to this. Standing for delivery is a good thing but if you merely take the warehouse receipt in lieu of the actual metal you have not done anything to short-circuit the bullion banks. You MUST REMOVE THE METAL. Fund managers that insist on continuing your brain-dead strategy of chasing momentum higher and higher could turn the tables on your enemies at the Comex and simply begin systematically acquiring the metal from Comex inventory. You are not trading soybeans here – this is gold and if you want to profit from this market then get rid of your algorithms and use your minds.

I might as well mention here that like most other things associated with the Comex, I am now having questions with the warehouse stocks number that they are releasing. In spite of very heavy deliveries occurring in the month of December (nearly 50% of the entire registered category), we saw an almost imperceptible change in the numbers being reported for the warehouse stocks. I find that quite difficult to believe. If nothing else we should have seen some changes occurring between the registered and eligible category. Once again when it comes to the paper gold market, we get nothing but more murkiness. Personally I miss the old full sized gold contract that was up and running when the CBOT managed it; at least we  had some openness and transparency in the contract with that exchange. If the Comex gold contract ever does become extinct, they will have no one to blame but themselves. We live in an age of increasing sophistication among traders and investors who demand transparent markets and level playing fields. The inability or unwillingess of the Comex authorities to provide either leaves no one but themselves to blame should traders vote with their feet and take their business elsewhere.

I mentioned yesterday the fact that the commodity currencies, (the Australian, New Zealand and Canadian Dollars), were all trading higher against the US dollar and that we needed to keep an eye on that as it might signify a bottoming of the commodity markets. Those three currencies are all trading above their respective 50 day moving averages. They are still below the 100 day however so we do not have an all clear sign as far as a trending move goes. Of the three, the Canadian Dollar is showing the most strength today as of the time I am writing this. That probably is the result of the action in the TSX which is seeing energy stocks and natural resource stocks all performing quite nicely. There are obviously strong money flows into Canada right now.

I also mentioned that the fundamentals for the platinum group of metals (platinum and palladium) were extremely weak and if they began showing signs of bottoming action it would also have a positive effect on the entire complex. Today palladium took off to the upside completely negating yesterday’s weak showing. Should it break through the $200 level and maintain its footing above that level, that alongside of further upward action in the Aussie, Kiwi and Loonie, would have to be respected as a sign that the complex has put in a bottom. The problem in attempting to decipher all this mess is that the fundamentals are murky at best but the index funds are throwing money into the markets willy-nilly irrespective of such things so you get a situation where you are unclear as to what is really taking place – are these markets actually bottoming in the midst of a global slowdown or are the technicals now saying that prices have gotten too cheap and are now screaming buys. We do have some markets where the fundamentals argue that prices are definite buys – others are not there yet but they are still going up as index fund money flows into them anyway. Anyone who claims to have all of this figured out is far wiser than I am and I will be the first one to come and sit at their feet and learn. For now, short term scalping might be a better bet for traders because these damn index funds can spin out on a dime and exit as fast as they came crashing in. Their giddiness of one day can be replaced by depression and despair the next. Today however it is all bells and whistles as they are busy slinging money at anything that looks, talks, walks or smells like a commodity. Ah yes, such finesse in trading is a thing of beauty to behold. I am sure it must have taken those who manage these institutions every bit of 15 minutes of life experience to learn how to trade in such a skillful fashion.

Yesterday I remarked about crude oil saying that it would take a strong close above $50 to convince me that a new uptrend is beginning. Today it briefly flirted with that level before sellers showed up in force and promptly beat it back down. Still, this market has to be respected because any further eruptions on the geopolitical scene and traders will be focusing solely on that as they rush in to buy. For right now it does appear that crude is encountering selling pressure near  the $50 level which also happens to closely correspond to the 50 day moving average – a major technical resistance area. Tomorrow’s session should clear things up a bit in regards to this market.

Bonds continued to wilt dropping almost a full point today before managing a bounce. They are perilously close to the 40 day moving average which if it cannot hold, will send the fund longs fleeing for cover. Given the steepness of the decline, I would expect to see some short covering coming into this market if for no other reason than they are short term oversold after being overbought for so long. Has the bubble in the bonds finally popped? Again, I am not sure but one thing is certain, the level near 141^27 – 141^30 is formidable resistance. If bonds punch through that level it will mean the Fed is losing their battle against deflation.

The mining shares rebounded today following the action in the metal itself as both the HUI and the XAU are higher and are trading above their respective 10 day moving averages. The bearish divergence on both charts is a reason for concern so this sector will have to quickly push through last week’s highs to provide the bulls with fresh recruits to their side. That level is 127 on the XAU and 309-311 on the HUI. If they hesitate there shorts will be emboldened and short term oriented longs will bail out. The onus is now on the bulls to provide sufficient firepower to assuage any concerns. All in all a nice showing in all things golden today. Let’s see if that can continue tomorrow.

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

January0609Gold1230pmCDT.jpg

Posted at 12:24 PM (CST) by & filed under In The News.

Dear CIGAs,

There is absolutely no question that the price of gold will reach $1200, $1650 and then continue onward to Alf’s numbers.

Three hoots for Panizutti, a close friend of Carlo Fibonacci.

Gold May Advance for Eighth Year as ‘Perfect Insurance’ Sought
By Nicholas Larkin, Claudia Carpenter and Pham-Duy Nguyen

Jan. 6 (Bloomberg) — Gold, the best-performing metal in 2008, may appreciate for an eighth year as investors seek a refuge from declining interest rates at the same time that central banks inject more cash into the banking system.

The metal will average $910 an ounce in 2009, 4.3 percent more than last year, according to the median forecast of 20 analysts, traders and investors surveyed by Bloomberg. Silver and platinum, which averaged at least 12 percent more in 2008, will decline this year, the survey showed.

Gold prices may strengthen after about $29 trillion was wiped offequities last year, the Federal Reserve cut interest rates to as low as zero and governments sought to end the worst financial crisis since World War II. The metal was one of only four commodities to rise when the Reuters/Jefferies CRB Index fell 36 percent, the worst year in a half-century.

“People fear inflation, they fear the credit crunch and they fear currency losses, and gold is the perfect insurance against all of that,” said Frederic Panizzutti, a senior vice president at Geneva-based bullion refiner MKS Finance SA, who forecasts gold will average more than $900 in the first half of 2009. Panizzutti was the most accurate forecaster in the London Bullion Market Association’s 2008 survey.

Average gold prices have risen for seven consecutive years, the longest winning streak since at least 1949. While the return of 5.8 percent through 2008 was the smallest since 2004 in dollar terms, gold rose 11 percent in euros and 44 percent in British pounds, data on Bloomberg show.

More…

Jim Sinclair’s Commentary

This number will rise to $17.2 trillion by June of 2010 or sooner.

You want to own the dollar and have no Gold? That is called financial suicide, yet horses still run back into burning barns from time to time, therein killing themselves.

The $8 trillion bailout
Many details of Obama’s rescue plan remain uncertain. But it’s likely to cost at least $700 billion – and that would push Uncle Sam’s bailouts near $8 trillion.

By David Goldman, CNNMoney.com staff writer
Last Updated: January 6, 2009: 9:28 AM ET

NEW YORK (CNNMoney.com) — Sitting down? It’s time to tally up the federal government’s bailout tab.

There was $29 billion for Bear Stearns, $345 billion for Citigroup. The Federal Reserve put up $600 billion to guarantee money market deposits and has aggressively driven down interest rates to essentially zero.

The list goes on and on. All told, Congress, the Treasury Department, the Federal Reserve and other agencies have taken dozens of steps to prop up the economy.

Total price tag so far: $7.2 trillion in investment and loans. That puts a lot of taxpayer money at risk. Now comes President-elect Barack Obama’s economic stimulus plan, some details of which were made public on Monday. The tally is getting awfully close to $8 trillion.

Obama’s plan would combine tax cuts with infrastructure job creation efforts. Economists say it could serve as an integral piece to the government’s remaining economic recovery puzzle.

More…

 

Jim Sinclair’s Commentary

Yes, "MASSIVE" is a good description of the up-coming, DOWNWARD heading US dollar.

Willem Buiter warns of massive dollar collapse
Americans must prepare themselves for a massive collapse in the dollar as investors around the world dump their US assets, a former Bank of England policymaker has warned.
By Edmund Conway, Economics Editor
Last Updated: 6:32PM GMT 05 Jan 2009

The long-held assumption that US assets – particularly government bonds – are a safe haven will soon be overturned as investors lose their patience with the world’s biggest economy, according to Willem Buiter.

Professor Buiter, a former Monetary Policy Committee member who is now at the London School of Economics, said this increasing disenchantment would result in an exodus of foreign cash from the US.

The warning comes despite the dollar having strengthened significantly against other major currencies, including sterling and the euro, after hitting historic lows last year. It will reignite fears about the currency’s prospects, as well as sparking fears about the sustainability of President-Elect Barack Obama’s mooted plans for a Keynesian-style increase in public spending to pull the US out of recession.

Writing on his blog, Prof Buiter said: "There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place."

He said that the dollar had been kept elevated in recent years by what some called "dark matter" or "American alpha" – an assumption that the US could earn more on its overseas investments than foreign investors could make on their American assets. However, this notion had been gradually dismantled in recent years, before being dealt a fatal blow by the current financial crisis, he said.

More…

 

Jim Sinclair’s Commentary

Pakistan in the News:

Taliban kill two US ‘spies’ in Pakistan: official

MIRANSHAH, Pakistan (AFP) — Taliban militants hanged one man and shot dead another in a restive Pakistani tribal region near the Afghan border, after accusing them of spying for the United States, an official said Tuesday.

The body of local tribesman Shahjir Khan, 25, was found early Tuesday dumped in the central market of Miranshah, the main town in the North Waziristan tribal district, a security official told AFP.

A note found with Khan’s body said he had been hanged because he had spied on Taliban activities and passed information to the United States, the official said.

The bullet-riddled body of an Afghan refugee identified as Akram Khan was found late Monday near the village of Sarobi, some 10 kilometres (six miles) south of Miranshah, with a similar note, he said.

More…

Pakistan Agencies Aided Mumbai Attack, Singh Says (Update1)
By Bibhudatta Pradhan and James Rupert

Jan. 6 (Bloomberg) — “Official agencies” in Pakistan supported the militants who attacked Mumbai in November, Indian Prime Minister Manmohan Singh said, making India’s sharpest accusation yet that Pakistan’s government was involved.

“There is enough evidence to show that, given the sophistication and military precision of the attack it must have had the support of some official agencies in Pakistan,” Singh told chief ministers of India’s states today at a meeting on counter-terrorism.

India yesterday gave Pakistan and other governments what it said was evidence linking Pakistani “elements” to the Nov. 26- 29 attack on Mumbai, increasing pressure on its neighbor to act against the militant group India has blamed for the assault. It is unclear how long Pakistan will need to judge the evidence and decide on any action, Farhatullah Babar, a spokesman for Pakistan’s president, told India’s NDTV television today.

More…

Pakistan ‘knew of Mumbai plot’

A senior Indian government official has suggested that leading figures in the Pakistani establishment must have known of the plot to carry out last November’s deadly attacks in Mumbai, and hinted that some may have actively supported it.

Shivshankar Menon, India’s foreign secretary said he found it "hard to believe that something of this scale … could occur without anybody, anywhere in the establishment knowing that this was happening."

Speaking to reporters in New Delhi, Menon dismissed repeated Pakistani assertions that the attacks were carried out by "non-state actors" and said India was unimpressed by Pakistani pledges to crackdown on suspects.

The attacks on multiple targets in India’s financial capital lasted for nearly three days and left 179 people dead with hundreds more wounded.

Menon’s comments came after Indian officials handed Islamabad evidence they say clearly shows the attack originated in Pakistan.

New Delhi has previously been careful not to blame the attacks on the Pakistani government, and Monday’s statement accused "elements in Pakistan" of being behind the plot.

More…

Posted at 8:07 PM (CST) by & filed under General Editorial.

My Dear Extended Family,

Today may set the record for emails sent to you on key subjects.

I am writing to you from Africa and it is quite late here.

In the now 50 years of my career, I have never seen so many subjects in one day demanding immediate clarification.

It is my joy to serve you.

Respectfully yours,
Jim

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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