Posted at 12:57 PM (CST) by & filed under Jim's Mailbox.

Jim,

The latest UBS report on gold (Click here to view the report in PDF format) says that it can potentially go to US$2,500/oz.

The exact wording is:

"Using a proprietary econometric model we have generated a probability cone for the future possible price path for gold. Using different environments for the level of inflation volatility, US dollar and absolute level of inflation we have determined that future returns on gold are likely to be positively asymmetric, with potential upside to US$2,500/oz."

They note that gold is a hedge against deflation and inflation particularly if the source of that inflation is loose monetary policy.

They recommend exposure to gold and favor gold shares.

Regards,
Christopher

Hi Jim,

"The Swiss bank, one of the most active gold dealers, warned of "a potential upside of $2,500 an ounce" as some hedge fund investors who made money last year by betting against investment banks are now buying gold as a way of betting against central banks."

This article appears in money.ninemsn.com.au and I thought you should see it.

http://money.ninemsn.com.au/article.aspx?id=769646
For all the latest news around the globe, check out ninemsn.
http://ninemsn.com.au

CIGA Eric

Eric,

This is because UBS spent more time talking about meaningless central bank gold sales. It was that which was put up on Bloomberg every 4.5 minutes from 8:30 AM to and through the end of Bernanke’s speech and pre-screened friendly question interview.

Since the gold guys spend more time looking for why they are wrong the Comex had its way with gold one more time.

Respectfully yours,
Jim

Actual ‘Letter to the Editor’ from the February 5th edition of the Wichita Falls , Texas Times Record News…

Dear IRS,
I am sorry to inform you that I will not be able to pay taxes owed April 15, but all is not lost.

I have paid these taxes: accounts receivable tax, building permit tax, CDL tax, cigarette tax, corporate income tax, dog licence tax, federal income tax, unemployment tax, gasoline tax, hunting licence tax, fishing licence tax, waterfowl stamp tax, inheritance tax, inventory tax, liquor tax, luxury tax, medicare tax, city, school and county property tax (up 33 percent last 4 years), real estate tax, social security tax, road usage tax, toll road tax, state and city sales tax, recreational vehicle tax, state franchise tax, state unemployment tax, telephone federal excise tax, telephone federal state and local surcharge tax, telephone minimum usage surcharge tax, telephone state and local tax, utility tax, vehicle licence registration tax, capitol gains tax, lease severance tax, oil and gas assessment tax, Colorado property tax, Texas, Colorado, Wyoming, Oklahoma and New Mexico sales tax, and many more that I can’t recall but I have run out of space and money.

When you do not receive my check April 15, just know that it is an honest mistake. please treat me the same way you treated Congressmen Charles Rangel, Chris Dodd, Barney Frank and ex-Congressman Tom Daschle and, of course, your boss Timothy Geithner. No penalties and no interest.

P.S. I will make at least a partial payment as soon as I get my stimulus check.

Ed Barnett
Wichita Falls

Jim,

We live in an age marked by stupidity and ignorance even though we have the most advanced technology and means of conveying information ever devised yet by man.

Sitting here watching these dumbasses throwing gold out the window in the midst of what is occurring is something I did not believe men were capable of.

I guess we all learn each day… never underestimate the ability of the American citizen to be so damn dense….

CIGA Frustrated

CIGA Frustrated,

To this all I can add is AMEN Brother.

Jim

 

Jim,

Have you been asked by the decision makers for advice? I guess not as you will tell like it is.

Everyone knows (at least by now) what the truth is but to take the right path is too damn hard to take.

Such brilliance in your analysis and a shame you are not being consulted and then to listen to the garbage from the media experts, talking heads, etc.

I guess the day Man can legislate Conscience it will be the end, but it is impossible.

Another enlightening comment: God created earth, water and air for all the living. Two of them man has been able to legislate – i.e. mine, yours… Air is the only thing man has not been found to be that brilliant to legislate. Just imagine if they could legislate AIR!!

CIGA Shakeel

Dear Shakeel,

It was a great American, Chief Seattle, that asked; "How can you sell air?" Wall Street did. Air is called OTC derivatives.

If governments took only one thing I know seriously, I would hope it is the danger of Pakistan in Taliban hands. That one can change the face of the planet.

Respectfully,
Jim

 

Dear Jim,

I remember seeing many years ago a chart of a cup and handle for gold, it appears we have another one! It looks like gold will double very soon.

Again you look spot on for your target of 1650 on or before Jan 14, 2011!

Best,
CIGA BT

clip_image001

Dear CIGA BT,

Yes, and there is no power on the planet that can stop this. The consequences of these actions are only a matter of time.

Jim

Posted at 4:42 PM (CST) by & filed under General Editorial.

Dear CIGAs,

The following article is an excellent review of the Fed payouts to OTC derivative winners via their brokers.

Bailout Mo’ Money
Catherine and News & Commentary,
March 9, 2009 at 11:03 am
http://solari.com/blog/?p=2258#more-2258

We thought we would dig out the data to update Bloomberg’s calculation of November 2008 that totaled the bank bailouts at $8.5 trillion.

clip_image001

Here is our list of additional commitments:

I. $750 Billion for Bank Bailout

There is reportedly $750B in the President’s 2010 FY budget for “the banks.”  An MSNBC article on 2/26/08 [http://www.msnbc.msn.com/id/29415050/] quotes Treasury Secretary Geithner as saying this is merely a “placeholder” in case of further deterioration of the economy and indicates the purpose of such funds would be further purchases of troubled assets.  CBO scoring of this budget item results in a net expenditure estimate of $250B (meaning that, based upon the quality of assets purchased in the TARP program so far, the government would recover $.78 for every asset purchase dollar).  OMB’s recovery estimate is a more conservative $.66 for each purchase dollar.  Of course, this is not a final number until appropriated by Congress, and many changes will be made to the budget before it is final.

II. $787 Billion for the Stimulus Package, adopted by Congress as part of the American Recovery and Relief Act of 2009.

III. $1 Trillion for the Financial Stability Plan:

$500B has been deposited into a Stability Trust.

$500B – $1 Trillion is set for later deposit into a Public/Private Investment Fund.

The government’s fact sheet does not make clear whether the whole amount is public investment, however, as some press reports would seem to imply.  Treasury Secretary Geithner’s speech as reported in the Washington Post seems to indicate that $1T is the total available to lend, so that amount would also include the private money being “leveraged.”  This interpretation would be consistent with the $500B figure reported by the New York Times as the amount of the bailout related to the Public/Private Investment Fund.

IV. TALF – funded from TARP

On March 3, 2009, Treasury and the Federal Reserve announced the creation of the Term Asset-Backed Securities Loan Fund (“TALF”) “designed to catalyze the securitization markets by providing financing to investors to support their purchases of certain AAA-rated asset-backed securities” as a “component” of the Consumer and Business Lending Initiative (“CBLI”), which is established under the Emergency Economic Stabilization Act of 2008.  This seems to indicate the government component of this facility would be funded with TARP funds.  The Treasury press release states that the Federal Reserve Bank of New York will lend up to $200B to eligible owners of AAA asset-backed securities secured by auto, student, credit cared and SBA-guaranteed small business loans. CBLI guidelines provide that the government’s investment comes in the form of a Treasury investment in special purpose vehicles of Federal Reserve banks (like TALF). Notably, it also states that TALF was formed “to purchase collateral that borrowers from the SPV may forfeit” and that Treasury will share in the gains and losses of the SPV.

V. Exchange Stabilization Fund – Fed liabilities for money market fund losses – potential $46 – $50 Billion reduction in bail-out costs as reported by Bloomberg

According to the U.S. Treasury website, the $50B facility at Exchange Stabilization Fund to cover potential losses at money market funds only lasts (as extended) until April 30, 2009 unless the facility is extended again.   Statements on the site seem to anticipate that Treasury probably will not extend it.   Assuming there are no additional money market fund claims for losses, $46B would be SUBTRACTED from the Bloomberg list after April 30, 2009. [NOTE: The Bloomberg chart shows $50B under Treasury programs, Treasury Exchange Stabilization Fund with the description "buys and sells short-term notes to moderate fluctuations of foreign securities” and a $540B commitment ($0 tapped) by the Fed described as "buys financial assets from financial companies to bolster money-market mutual funds.”  Recall earlier that the bailout chart offered by the New York Times in early February shows that Treasury spent $4B to cover losses on the liquidation of the Reserve US Government Fund.  If the NYT account is accurate, ESF and not the Fed took this loss.]

VI. $2.274 Trillion Fed overnight lending facility

According to the New York Times, the Fed’s overnight lending was expanded to $2.4T.   The Bloomberg chart seems to be counting $128B in that category — $10B under “overnight loans” and $118M under “secondary credit.

VII. $50 Billion More for Citigroup

On Friday, February 27, the government announced a conversion of $25B of Citigroup preferred stock into common stock, resulting in a 38% government stake in Citigroup.  Reportedly, there is no additional cash infusion, but, according to the Option ARMageddon site:

“The move is an acknowledgment that more than $50 billion in government capital and a backstop on more than $300 billion in troubled Citigroup assets haven’t been enough to stop the bank’s slide.”

VIII.   $ 50 Billion Additional AIG bailout [see: Federal Reserve Press Release]

The AIG bailout (originally, all in the form of an $85B line of credit for an 80% stake in the company) grew, but by how much is not clear.  The Bloomberg chart indicates that $123B was committed by the Fed and $87B was actually taken down [all other sources refer to an $85B line of credit, so Bloomberg either knows something no one else does, or this is a mistake].

On March 3, CNN’s online site reported as follows:

“The U.S. government’s role as a savior to AIG began in September, with a two- year, $85 billion credit line. Since then, it has grown; currently, the government is offering up to $173.3 billion in assistance.”

This $173.3B appears to include the original $85B.

The Wall Street Journal [http://online.wsj.com/article/SB123599072033008283.html] reports the following sequence of events [March 3]:

“The bailout of AIG has gotten bigger, and taxpayers have taken on more risk:

Sept. 16: The government extends AIG a two-year loan of up to $85 billion, and gets a 79.9% stake in return.

Oct. 8: Bailout loans increase to nearly $123 billion due to problems in AIG’s securities-lending program.

Nov. 9: The rescue package increases to $150 billion, including a new $40 billion federal investment.

March 1: The government makes $30 billion in TARP money available and cuts the loans to up to $25 billion.”

It is not clear what the “$40B federal investment” is. The Fed’s website says that the government exchanged its $40B cumulative preferred shares in AIG for new preferred shares that more closely resemble common equity, so it is likely there is no “new” $40B investment.  The reduction of the “government” loans to $25B is actually a reduction of the $60B revolving credit facility put up by the Federal Reserve Bank of New York, not the government, so, essentially, the government’s commitment of TARP funds reduces the obligation of FRBNY.  The Fed website [http://www.federalreserve.gov/newsevents/press/other/20090302a.htm] discloses that FRBNY holds a lien on a substantial portion of AIG assets as well as preferred stock in two new entities formed to hold all of the stock of two life insurance holding company subsidiaries of AIG (valued at $26B).  The lien position means that the FRBNY has a superior position to that of Treasury as equity holder.

A third update on Bloomberg on March 3 reports:

“AIG is getting as much as $30 billion in new government capital and relaxed terms on its bailout announced yesterday.”

In a March 2 article, Reuters reports that the government’s exposure following the new bailout terms is $163B. On March 8, theInternational Herald Tribune, apparently using Reuters as a source, pegs the exposure at $160B. Other headlines in the first week of March report that Senate leaders grilled regulators about the “$180B AIG Bailout”.

Note: Bloomberg originally reported that the initial line of credit was backed by Treasury, but no other reports on the increased commitments mention a Treasury back-up.  One thing is clear: the blurring of the distinctions between the interests of the “government” and of the FRBNY in the press and the failure of the press to give accurate, complete and critical accounts of the AIG bailout terms, including the superior position of FRBNY to that of Treasury, has left the taxpayers largely in the dark.

IX. $470 Billion Proposed increase in authority of FDIC to borrow from Treasury

On March 3, Senator Dodd introduced a bill to expand FDIC’s line of credit with Treasury from $30B to $500B until the end of 2010.  End-of-2008 reserves at FDIC were only $19B.  The new borrowing authority would be limited to $100B unless consent of FDIC, Treasury Secretary Geithner, the Federal Reserve Board and the White House have been obtained.

Posted at 4:37 PM (CST) by & filed under General Editorial.

Dear CIGAs,

The following is a graphical illustration of just what one trillion dollars looks like.

What does one TRILLION dollars look like?
From http://www.pagetutor.com/trillion/index.html

All this talk about "stimulus packages" and "bailouts"…

A billion dollars…

A hundred billion dollars…

Eight hundred billion dollars…

One TRILLION dollars…

What does that look like? I mean, these various numbers are tossed around like so many doggie treats, so I thought I’d take Google Sketchup out for a test drive and try to get a sense of what exactly a trillion dollars looks like.

We’ll start with a $100 dollar bill. Currently the largest U.S. denomination in general circulation. Most everyone has seen them, slightly fewer have owned them. Guaranteed to make friends wherever they go.

clip_image001

A packet of one hundred $100 bills is less than 1/2" thick and contains $10,000. Fits in your pocket easily and is more than enough for week or two of shamefully decadent fun.

clip_image002

Believe it or not, this next little pile is $1 million dollars (100 packets of $10,000). You could stuff that into a grocery bag and walk around with it.

clip_image003

While a measly $1 million looked a little unimpressive, $100 million is a little more respectable. It fits neatly on a standard pallet…

clip_image004

And $1 BILLION dollars… now we’re really getting somewhere…

clip_image005

Next we’ll look at ONE TRILLION dollars. This is that number we’ve been hearing so much about. What is a trillion dollars? Well, it’s a million million. It’s a thousand billion. It’s a one followed by 12 zeros.

You ready for this?

It’s pretty surprising.

Go ahead…

Scroll down…

Ladies and gentlemen… I give you $1 trillion dollars…

clip_image006

(And notice those pallets are double stacked.)

So the next time you hear someone toss around the phrase "trillion dollars"… that’s what they’re talking about.

Posted at 3:43 PM (CST) by & filed under Guild Investment.

WHAT HAPPENED TO THE IDEAS OF PAUL VOLCKER

Why have we not heard any acceptance of the ideas of Paul Volcker?  Why are we hearing more about the ideas of Tim Geithner, who has thus far been a poor Treasury Secretary?   Mr. Volcker, the former U.S. Federal Reserve Chairman, a democrat, and the man who stopped the inflation of the 1970’s, is a U.S. economic hero.

President Obama has appointed him as chairman of a presidential economic advisory council, but thus far, the administration has not accepted or implemented any of his ideas.  Rather, they have been going with the confused and inadequately described plans of Mr. Geithner.  This has given rise to the view by many seasoned observers that the U.S. government does not know what to do!

The administration has thus far been unwilling to allow the ideas of Mr. Volcker to be shared on a national stage.  In our opinion, Volcker is one of the best people to formulate and implement the plan.

Recently, he has given a couple of speeches outlining his plans; one speech in Canada and one in the U.S.  To us, his plans appear to be concise, logical, and workable.  Rather than go into the details of his plan in this missive, let us say it involves returning to the rules that existed prior to 1999; in effect reinstating much of the old Glass-Stegal act, and disallowing commercial banks from taking on as much risk as they were able to take after that date. 

In contrast, Secretary Geithner’s plan seems to allow the miscreant big banks to return to the way of doing business that created the problems after the crisis ends.  We do not understand why the current plan, which appears confused and inadequate is being pursued.

THUS FAR THE MARKETS ARE TERRIFIED OF PRESIDENT OBAMA’S BUDGET AND HOUSING PLANS

We speak with many professional and individual investors.  The great majority of those with whom we have spoken believe that there is a good chance that they are going to be hurt by the administration’s budget and housing proposals.

Since the plans were announced the stock markets have practically been in freefall.  This has led to the world stock markets becoming oversold, and we would not be surprised to see a rally.

CLASS WARFARE RHETORIC IS HARMFUL

Global investors are also terrified of the class warfare rhetoric which is more and more frequently being heard in parliamentary bodies worldwide and in the global media.  This type of negative rhetoric can only weaken the world economy, and the future economic well being of everyone.

THIS IS NOT A TRIVIAL ECONOMIC DECLINE WORLDWIDE

Many countries are experiencing severe suffering.  This is inexorably leading to more protectionism everywhere.  Jeffrey E. Garten, a professor at the Yale School of Management who held economic and foreign-policy posts in the Nixon, Ford, Carter and Clinton administrations argued in a Wall Street Journal articled titled "The Dangers of Turning Inward" how countries’ attempts to protect their own companies and workers from the economic crisis will cause severe financial and political damage.  The article can be found here:  Wall Street Journal

CHINA AND THE GLOBAL DEPRESSION

China grows, and everyone acts as if it is a surprise.  We have followed China for many years, and have been calling for strong Chinese growth in 2009.  This is not due to our personal wisdom.  It is largely due to the work of our three favorite economists based in China, who have been remarkably accurate in the past.  We also have seen the work of twelve or more China based economists who have not been accurate in the past.  Our bullish outlook for the Chinese economy is being corroborated by the economic data and from the statements from their government officials.

China will grow in 2009.  It will grow much more than any other country of any size.  Realistically however, China’s growth alone, or even when combined with slower growth from India, will not be enough to create any semblance of growth in Europe and North America.

The global depression in Europe and the U.S. will continue and accelerate in coming months.

SUMMARY

We continue to see a repatriation of overseas money by frightened U.S. investors back to the United States, which has strengthened the U.S. dollar versus most other currencies.  In our opinion, the dollar will eventually decline in value and we recommend that everyone watch to be sure that they are out of U.S. dollars when this takes place.

We believe that the U.S. and much of the world could see a stock market rally soon.  This rally could be an opportunity for those investors who still own a lot of U.S. stocks to create liquidity for their portfolios.  Longer-term, we believe the agriculture and gold sectors will perform well, and for those who sell short, we will continue to look for overvalued situations to sell short after the market rallies.

Many have asked us if we think inflation will return.  We definitely do think it will return, but not in 2009.  It will return because many governments worldwide are increasing their money supplies, and once the banking system returns to operating effectively, the velocity of money will rise.  In our opinion, this will lead to a rise in inflation, and when inflation returns to the U.S., it will make itself felt worldwide.

It is interesting to note that in an interview yesterday, Warren Buffet agreed with the inflation thesis.  He is joining a group of prominent economists and business people who believe that the current world economic policy, will lead inexorably to worldwide inflation.

Thanks for listening.

Monty Guild and Tony Danaher
www.GuildInvestment.com

Posted at 3:39 PM (CST) by & filed under In The News.

“When you see that trading is done, not by consent, but by compulsion — when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see money flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and pull than by work, and your laws don’t protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed.”
–Ayn Rand, Atlas Shrugged (1957)

Dear CIGAs,

Here is an interesting question concerning the mark to market requirement for financial organization’s valuation of their so called assets.

"If you remove the requirement for mark to market of financial assets, can you calculate asset valuation selectively such as only up valuation but not down valuation?"

Does extreme times require extreme lies? Do the ends really allow any means? Does the accomplishment of fake valuation really make the damage that will be done over coming decades worthwhile? You could not count on any balance sheet as truthfully communicating worth. No, the ends here do NOT justify the means.

 

Jim Sinclair’s Commentary

The following is a video of the Bernanke-Sanders exchange courtesy of CIGA Anthony.

Jim Sinclair’s Commentary

I believe I covered this in my answer to Greg Hunters question yesterday, however this article does cover his point in much more detail.

Number One Reason to Own Gold
By Patrick A. Heller, Market Update
March 10, 2009

What do the following industry-leading companies have in common?

Alcoa, AIG, AMBAC, American Express, AMR (American Airlines), Bank of America, Bear Stearns, CBS, Citigroup, Countrywide Credit, Delphi, Dow Chemical, Eastman Kodak, Fannie Mae, Ford, Freddie Mac, Gannett, General Electric, General Motors, Goodyear Tire, Harley-Davidson, The Hartford, International Paper, JDS Uniphase, Lear, Lehman Brothers, Liz Claiborne, Macy’s, MBIA, Merrill Lynch, MetLife, MGIC, MGM, Motorola, JC Penney, Prudential, Saks, Sears, SprintNextel, Tenet Healthcare, UAL (United Airlines), United States Steel, Wachovia Bank, Washington Mutual, Whirlpool, and Xerox.

The answer: Since the middle of 2007, all of these companies have seen their stock values decline by more than 80 percent.

At the close of markets on June 29, 2007, gold was at $648. Its price now is more than 40 percent higher than it was then. Gold has outperformed the stocks in these companies by at least seven-fold in the past 20 months.

This example is a perfect demonstration of the number one reason to own gold. The best purpose for owning gold is for insurance against calamities that may affect the values of paper assets. The concept of owning insurance is not to make a profit by collecting on it (no one wants to be in a car accident, have their house burn down, lose valuable possessions to burglars, and so forth), but to have some protection just in case bad things come to pass. Gold serves to preserve and protect wealth.

Gold provides a stable form of money to facilitate commerce. An ounce of gold may temporarily hold a particular exchange rate versus dollars, pounds, euros, pesos, yen, francs, etc., but the value of these fiat currencies can and do change, usually downward. So far in history, there has never been a paper currency that has not eventually failed. In contrast, an ounce of gold from six thousand years ago is still worth an ounce of gold today.

Physical gold in your immediate possession is an asset that is not anyone else’s liability, so it has no counterparty risk. While the value of gold can fluctuate as measured in paper currencies, it has never suffered as much as these stocks of the companies listed above.

More…

 

Jim Sinclair’s Commentary

Today in Pakistan.

Pakistan: has it reached the edge of the precipice?
Posted by: Myra MacDonald
March 10th, 2009

Maybe this always happens at times of national upheaval. But there is a surprising disconnect between the immediacy of the crisis facing Pakistan as expressed by Pakistani bloggers and the more slow-moving debate taking place in the outside world over the right strategy to adopt towards both Pakistan and Afghanistan.

Reading Pakistani blogs since confrontation between the country’s two main political parties explodedand comparing them to international commentaries is a bit like watching men shout that their house is on fire, and then panning over to the fire station where the folks in charge are debating which type of water hose works best.

With lawyers and supporters of opposition leader Nawaz Sharif vowing to blockade parliament later this week over the refusal of President Asif Ali Zardari to reinstate fired judges, the country is steeling itself for violent street protests, which in turn could provide easy targets for suicide bombers seeking to add to the mayhem. Sharif has talked about “a prelude to a revolution”, prompting the government to threaten him with charges of sedition.

Writing in Pak Tea House, a blogger who had insisted right up until February that Pakistan would turn out all right said this had been based on the assumption political parties would pull back from outright confrontation in the interests of the country. “I was wrong. And so faced with altered facts, I have changed my opinion. Pakistan is unraveling.”

More…

Jim Sinclair’s Commentary

Today there was a release of what was termed an internal memo at Citi saying things are going very well this quarter.

This internal memo is nothing more than a plausible denial PR campaign.

US Already Preparing Next Citigroup Bailout (C)
Joe Weisenthal|Mar. 10, 2009, 5:43 AM

Three bailouts later, and Citigroup (C) is still a $1 stock. Hence the government is already engaged in "contingency planning", says WSJ, on the off-off chance that thinks take a turn for the worse.

What would that turn for the worse be? An actual bank run. Already Citi’s CDS are trading at blowout spreads, an ominous sign given how much intervention there’s already been, but bank executives swear there have been no hints of a run. Really.

Again, it’s all contingency planning, and whoever leaked this story to the Journal says they don’t expect to have to go through with it.

More…

Jim Sinclair’s Commentary

People selling their insurance might just be a tad early.

Too big to fail? 5 biggest banks are ‘dead men walking’
By Greg Gordon and Kevin G. Hall, McClatchy Newspapers Greg Gordon And Kevin G. Hall, Mcclatchy Newspapers – Mon Mar 9, 5:19 pm ET

WASHINGTON — America’s five largest banks, which already have received $145 billion in taxpayer bailout dollars, still face potentially catastrophic losses from exotic investments if economic conditions substantially worsen, their latest financial reports show.

Citibank, Bank of America , HSBC Bank USA , Wells Fargo Bank and J.P. Morgan Chase reported that their "current" net loss risks from derivatives — insurance-like bets tied to a loan or other underlying asset — surged to $587 billion as of Dec. 31 . Buried in end-of-the-year regulatory reports that McClatchy has reviewed, the figures reflect a jump of 49 percent in just 90 days.

The disclosures underscore the challenges that the banks face as they struggle to navigate through a deepening recession in which all types of loan defaults are soaring.

The banks’ potentially huge losses, which could be contained if the economy quickly recovers, also shed new light on the hurdles that President Barack Obama’s economic team must overcome to save institutions it deems too big to fail.

More…

 

Jim Sinclair’s Commentary

Maybe this internal memo missed the media’s attention.

Regulatory reports show 5 biggest banks face huge losses
By Greg Gordon and Kevin G. Hall | McClatchy Newspapers

WASHINGTON — Five of America’s largest banks, which already have received $145 billion in taxpayer bailout dollars, still face potentially catastrophic losses from exotic investments if economic conditions substantially worsen, their latest financial reports show.

Citibank, Bank of America, HSBC Bank USA, Wells Fargo Bank and J.P. Morgan Chase reported that their "current" net loss risks from derivatives — insurance-like bets tied to a loan or other underlying asset — surged to $587 billion as of Dec. 31. Buried in end-of-the-year regulatory reports that McClatchy has reviewed, the figures reflect a jump of 49 percent in just 90 days.

The disclosures underscore the challenges that the banks face as they struggle to navigate through a deepening recession in which all types of loan defaults are soaring.

The banks’ potentially huge losses, which could be contained if the economy quickly recovers, also shed new light on the hurdles that President Barack Obama’s economic team must overcome to save institutions it deems too big to fail.

While the potential loss totals include risks reported by Wachovia Bank, which Wells Fargo agreed to acquire in October, they don’t reflect another Pandora’s Box: the impact of Bank of America’s Jan. 1 acquisition of tottering investment bank Merrill Lynch, a major derivatives dealer.

More…

Posted at 3:22 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

News that CITI showed a profit ( I say this with the utmost disdain) coupled with chatter that the SEC would reinstate the uptick rule next month, was enough to send equities sharply higher today. That of course did not help the gold stocks which were once again obliterated as gold was summarily dumped by investors since now that the worst of the crisis is behind us, it is no longer necessary to have a safe haven. It is safe to plunge headlong in the equity pool once more. After all, a stock that once traded at $50 and went down to $1.00 is a helluva deal especially seeing that it is such a profit-making machine.

Investors- have no fear – once you buy that stock and it doubles in price, you then get to contribute a nice chunk of your profits to the government seeing that the Obama administration plans on raising the capital gains tax. That way some more of your money can then be funneled right back into CITI which will then once more claim more “profits”, so you can then buy some more of it, so that you can then pay more capital gains taxes, so that more of your tax money can go back into CITI, and so on and so on and so on. Is it just me or is something fishy about the way this thing works? Either way,  isn’t life grand when you are a well-connected banking insider?  A couple of hundred years ago and CITI would be hanging in effigy in the town squares of this nation. Now they are heralded… I was born in the wrong century! I would love to hold a bucket full of piping hot tar or at least a bag of feathers….

All of this commotion also means that that flight to the “safety” of the US Dollar is no longer necessary either, so down it went and up went everything else. For now gold is trading in lockstep with the Dollar meaning it is moving higher when it moves higher and lower when it moves lower. The effect is to take the gold price down sharply in terms of the other major currencies. I will be watching the price action in British Pound Gold and Euro gold to get a feel for when these retracement has run its course.

Today’s sharp drop in price brought gold within a whisker of critical support in the $890-$880 range. It needs to hold here or it has a very good chance of setting all the way back down to the 100day moving average near $840. We would then really get to see the gold bears whooping it up. Let me say here once again to all of you who take a perverse delight in filling my inbox with your rants every time gold experiences a correction in price, please buy all the Dollar backed paper assets you can possibly stuff into your portfolio and please sell every single bit of your gold, assuming you ever owned any, and have a happy life. I am sure your bonds, bills and notes will be of immense value next year. Those of us who actually are concerned about what we see coming to our nation and want to acquire the metal, will make certain that we come to you, bow down, kiss your feet and beg your for money so that we can survive, having ruined ourselves by our folly in buying real gold as a store of value. Repeat after me – PAPER – GOOD; GOLD- BAD.

Technically the price action in gold is bearish as it has fallen beneath the 50 day moving average, something which it had not done this year. That gives the bears the short-term edge and sets up a test of our old friend and Jim’s angel, $880, should it be unable to recapture the 50 day within the next two days or sooner. Bulls will need to hold their ground there or the retracement in gold will be deeper and longer in time. You can view the chart to get an idea of where the Fibonacci retracement levels come in that could provide support levels. Resistance has now dropped to $930 which gold would need to surmount and maintain in order to avoid forming a bearish flagging formation.

The HUI, what can you say about its chart except that it stinks. It managed to undo yesterday and today all the friendly developments it had accomplished last week. It is now unfortunately in the precarious situation of having to hold above the January low near 241 to avoid a topping formation which would technically point it all the way back down to 180 or lower. Bulls are going to have to dig in and find some spine in a hurry.

The Dollar still looks to me to have topped out but trying to read these markets in today’s environment is becoming more and more difficult with the passing of each week. The 90 level on the USDX has proven to be as formidable as the $1,000 level on gold but so far the Dollar has not completely broken down technically either. It bounced off of the 20 day moving average but it is trading below the 10 day which means that short term it is bearish but a bit longer term it is still acting like the latest setback is a retracement in a bullish market. I would have to see the Dollar trade below the 86 level to feel like a longer term top is in.

The equity bulls got their bounce from under 700 on the S&P. Now let’s see what they can do with it. As long as there is no further bad news, shorts will continue covering their equity positions since the market will need further evidence of economic deterioration to convince the bulls that their happy talk is not justified.

Bonds fell apart today but are still trading within the big up range from last Thursday’s monster rally. As long as they hold above the low made that day, it is hard to be too negative on them for the immediate term.  A breach of that however will start another leg down.

In the interesting news category for today – The European countries that are signatories to the Central Bank Gold Agreement sold 80 metric tons of gold since the end of September 2008, which marks the beginning of the new period that ends Sept. 26, 2009. They are limited to the sale of 500 tons of gold under that agreement for each period.

That is a pretty hefty slowdown if you consider that in 5 months time they sold a mere 80 tons. It certainly looks to me like some of the signatories are having second thoughts about parting with their gold holdings. China would end up buying it all anyway…

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

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Posted at 2:23 PM (CST) by & filed under Jim's Mailbox.

Hey Jim,

Saw a news flash that Barney Frank, I don’t know why him, said the uptick rule would be restored in a month. Thus, the market begins the short covering rally? Look for confirmation.

CIGA Eric

 

Jim,

Warren Buffet may be a great investor, but as a political commentator he is no “oracle”. Buffet wants Wall Street and the financial community’s destruction of the world to go un-assuaged. Yesterday, his consistent use of Pearl Harbor imagery to describe the current financial mess is misleading and erroneous. He claims that no further attempts to find those culpable of crime will serve any purpose and prescribes a coming together and unity of purpose that the Pearl Harbor attacks produced. But who then, Warren, is the enemy we shall come together and unify against? At whom shall we direct our volleys of cannon fire? Buffet wants Wall Street and the financial community’s destruction to go un-assuaged. He likes war imagery, and then tells us to forget about war… just engage in unified purpose of restoration, preferably of the status quo, with minor amendment. He wishes no one held to account. Buffet is a coward; a special interest. His words do not deserve heed. No justice, no peace. The crooks must be held to account and face real justice. They are easily identifiable.

CIGA Pedro

Posted at 1:02 PM (CST) by & filed under General Editorial.

Dear CIGAs,

The Fed will fail to contain the price of gold for the following

reasons:

  1. The amount of money in the global system versus the tenderhooks which the international financial system hangs.
  2. The fact that once the real insiders who benefited from the $9.5 trillion dollars so far injected into the system recognize they have the largest possible paper currency and paper asset problem.
  3. The size of the bankrupt OTC derivatives in the system.
  4. The impact of any recovery in psychology on the velocity of money and therefore inflation.
  5. A recovery in energy prices along with drought conditions internationally as it effects edible commodities.
  6. The fact that Central Banks, like it or not, benefit from the increase in the price of gold.
  7. The fundamental condition of the US dollar at which its present level is violently overpriced.
  8. The fact that any separation in their inverse relationship of gold to the dollar is temporary and algorithm driven.
  9. The fact that the message lower gold makes is contra productive to the message the Fed want to communicate regarding business activity psychology.
  10. The fact that business conditions are not going to put on a sustainable recovery here.
  11. The fact that banks are not lending in any manner that can be considered positive for the housing market.
  12. The fact that the commercial credit market is on life support.
  13. The fact that the general public is starting to get quite angry internationally at the bailout of the big wigs and the screwing of the little guy.
  14. The fact that unemployment is going double digit.
  15. The fact that only the paper gold market is the tool of the Federal Reserve in any attempt to dissuade gold.
  16. The fact that the bullion market is in demand over the paper market for gold.
  17. The fact that hedge funds in every market are acting based on algorithms. This is creating such huge dislocations that traditional relationships are skewed, making every market a mindless speculation and eventually reducing activity to funds trading with funds.
  18. Because TA-wise Alf is right. TA and fundamentally Armstrong is right. Add to that Trader Dan and Monty. All of these men have decades of market experience.

Regards,
Jim