Posted at 12:33 AM (CST) by & filed under General Editorial.

Dear CIGAs,

Today I have simplified, but accurately outlined for you how paper currency works from Contract to Confetti and back again.

The following video fits in quite well with this market based educational initiative.

To this video, I would only add markets must be transparent, and the rules of level playing field must be adhered to. To stop white collar crime all one needs to do is make it a capital offense.

The way to make referees good regulators is to make deviations from duty a white collar crime.

White collar criminals are the most devoted cowards. I know this because I know them.

I have more respect for a ghetto kid that boosts a car, yet for the child in the ghetto there is no house arrest.

Posted at 11:24 PM (CST) by & filed under General Editorial.

Dear CIGAs,

money1&2_Page_2 money1&2_Page_1

Money always starts in some form of contract between the holder and the Treasury of the issuing country.

We will call this contract money.

During these times politicians have no control over issuing paper beyond the contract limitation. In the case of the $20 Gold certificate and $2 Silver certificate, the Treasury has agreed to give to the holder a $20 gold coin or 2 silver dollars in exchange for the certificate.

This controls the amount of liquidity in the system and acts to maintain the currency buying power without dilution in the form of increased money printing.

When things are going well in business and the paper assets of the issuing country are in market demand, government in modern times want politicians or people appointed by politicians to run the amount of money in the economy, not being restricted by a contract between a treasury and the holder of a currency.

money3&4_Page_1

20USD 

 

That is well and good for many years until increased amounts of speculation as a product of increased amounts of money in the system blows a bubble so big that the natural explosion of that bubble whips out the balance sheets of the players, banks and financial institutions.

Once it was a tulips bubble. Once it was the South Sea bubble, but this time it was different and more insidious.

Placing the horse in front of the cart, it was the creation of speculation money called OTC derivatives to a level that can only be described as COSMIC. The OTC derivative bubble exploded with a minor dip in the real estate market but then the OTC derivative collapsed on a modest recession in the real estate buying market. It was the collapsed OTC derivative that drove real estate and the credit markets into a total lock.

At this point non-contract money, which we will call CONFIDENCE-MONEY, begins to get shaky.

When general confidence is broken by a crash in the equity markets, or a market valuation of the currency in question, regardless of the depressed economy, hyperinflation occurs. Hyperinflation is a currency event described as a loss of confidence. It is not an economic event and does not occur in positive market environments or positive business conditions. This is a key point that the present students of markets haven’t a clue about.

Zimbabwe1 

This is called Confetti Money.

This has happened in America twice. The first was the collapse of the US Continental and the second was the collapse of the Confederate currency.

A close of the USDX below .72, which is certain to come, would be an event that would trigger a loss of confidence in the US dollar.

Loss of confidence in the US dollar could come in other ways such as the high expectations for the abilities of President Obama to be proven incorrect. The economic impact of the fall of Pakistan to the Taliban is another. There are many ways that confidence can be broken.

Every hyperinflation scenario has effectively stemmed from a result to some type of contract money.

You can see even Zimbabwe tried it where they tried to link their last printed money to agriculture by calling it an Agro but the name was nothing but hot air. The currency became totally worthless.

Rentenmark

The Rentenmark was Contract Money of a sort, much like what will come when the US dollar fails.

This is where the Federal Reserve Gold Certificate Ratio, modernized and revitalized, plus the policies that have a precedent of returning deficits towards surplus enters with Volcker at the helm.

The US Dollar then will be Contract Money, of a sort.

Pray to God Volcker lives long enough.

Posted at 6:29 PM (CST) by & filed under In The News.

Dear CIGAs,

$9.5 trillion of bailout money is enough to pay off every mortgage in the USA or write a check to every person on the planet for $1400.

Where did it go? The Fed keeps it secret. The Fed therefore has bigger secret accounts than Switzerland ever dreamed of.

One in 8 U.S. homeowners late paying or in foreclosure
Thu Mar 5, 2009 5:18pm EST
By Lynn Adler

NEW YORK (Reuters) – About one in eight U.S. homeowners with mortgages, a record share, ended 2008 behind on their loan payments or in the foreclosure process as job losses intensified a housing crisis spawned by lax lending practices, the Mortgage Bankers Association said on Thursday.

With unemployment at a 16-1/2-year high and expected to continue rising until mid- to late 2010, more borrowers will pay late or fall into foreclosure this year, said the group’s chief economist.

"While California, Florida, Nevada, Arizona and Michigan continue to dominate the delinquency numbers, some of the sharpest increases we saw last quarter in loans 90 days or more delinquent were in Louisiana, New York, Georgia, Texas and Mississippi, signs of the spreading impact of the recession," said Jay Brinkmann.

Duress is no longer isolated to borrowers with lower credit quality. As joblessness grew, so did late payments on prime fixed-rate loans that represent two-thirds of mortgages.

U.S. President Barack Obama’s $275 billion housing stimulus program will standardize modifications for distressed loans and pave the way for more refinancing.

More…

Jim Sinclair’s Commentary

Economic changes are processes, not singular events. The following is part of the hyperinflation process.

Because nothing done has targeted OTC derivatives as the villain in all this, there is nothing that can stop the ongoing process towards it final end. That end is not an event but a condition – hyperinflation.

American banking system insolvent, says US economist

6 Mar 2009, 2124 hrs IST, PTI

NEW DELHI: The American banking system has become insolvent following the global financial crisis which is likely to be deep and prolonged hitting the economies of the developing and developed world, said a US-based economist.

"In our assessment, the US banking system is insolvent… they are below the water level", said Nouriel Roubini, professor of the US-based Stern School of Business, while addressing a session on the global meltdown at the India Today Conclave 2009 here on Friday.

According to research, he said, the losses of the US banking system are a mammoth $ 3.6 trillion, with banks accounting for $ 1.8 trillion and pension funds, hedge funds and other shadow banking institutions, the remaining portion.

Pitching for nationalisation of crisis-ridden banks by the American government, the US-based economist said, "they (banks) could be handed over to the private sector after cleaning up".

Suggesting ways for tackling the global crisis, Roubini said it was time for the governments of developed and developing countries to act in concert to prevent further deepening of the global recession.

More…

Jim Sinclair’s Commentary

The Seven Story Mountain seeking the Real Story.

1. All of this, without exception, was an OTC derivative failure, even motors.
2. To a financial institution, every failure was an OTC derivative process.
3. There is not a sound bank in America.
4. There is no major financial institution that can be accurately described as sound.
5. For every loss there is a gain in transaction.
6. The gain can be in cash, position, fees or a mix of all three.
7. Now if everybody lost in the USA and on the planet, who won?

Corporate America’s Icons Crumbling Under Global Recession
By Steven Mufson
Washington Post Staff Writer
Friday, March 6, 2009; Page A01

The truisms have been familiar to generations of Americans: As General Motors goes, so goes the nation; Citigroup is too big to fail; General Electric, one of the 12 original companies in the Dow Jones industrial average in 1896, brings good things to life.

But the giants that only recently seemed like the unshakable foundations of the economy are faltering one after another. The girth that once seemed a source of strength now appears to be undermining them.

A share of Citigroup, worth $55.12 less than two years ago, yesterday cost about half of an ATM fee, finishing the day at $1.02 after briefly breaking below the buck-a-share level. The once-mighty financial conglomerate, valued at more than $300 billion in March 2007, was worth just $5.6 billion yesterday.

General Electric, whose mix of financial services, consumer products and industrial goods was once considered a sturdy pillar of the U.S. economy, closed yesterday at its lowest level since 1992, barely a 10th of its peak level. The price of a GE share, $6.66, was less than the cost of single compact fluorescent flood light bulb.

And battered GM shares slid yesterday yet another 15 percent to $1.86, not quite enough to buy a gallon of gasoline, after news that GM auditors warned the company might not remain a going concern without massive additional assistance from the U.S. government. While GM’s fate might indeed mirror the nation’s for now, the company could perish before an economic recovery arrives.

More…

Jim Sinclair’s Commentary

This type of talk, if it persists and gets heard in public, would begin the process of legislative weakening of the Federal Reserve.

AIG Update: Senators Doubt Fed Could Regulate Systemic Risk
By Emily Flitter, American BankerMarch 6, 2009

As the House Financial Services Committee met Thursday to discuss the creation of a systemic risk regulator, Senate Banking Committee members were questioning the mettle of the main candidate for the job, the Federal Reserve Board.

Senators openly doubted whether American International Group Inc., which has received four government bailouts so far, ever poised a systemic risk to the economy, and they asked if the central bank made a mistake in providing the company with assistance.

It seems as if the Fed led the government to make a "large blunder — the largest in modern history," according to Sen. Bob Corker, R-Tenn.

"I have a hard time understanding the systemic risk issue," Corker said at a hearing on the AIG bailouts.

Senate Banking Committee Chairman Christopher Dodd, D-Conn., said regulators would have to do a better job explaining how and why they rescued AIG.

"Public confidence in what we’re doing is at stake," he said.

More…

Jim Sinclair’s Commentary

Mullah Omar makes for today’s Pakistan:

Mullah Omar Calls for a Taliban Surge

By ROBERT MACKEY
March 6, 2009, 8:26 AM

The Pakistani newspaper Dawn reports that on Thursday, “the mausoleum of renowned Pashto mystic poet Abdur Rehman Baba was bombed by unidentified miscreants,” outside Peshawar, in Pakistan’s North West Frontier Province. Dawn calls the bombing of the shrine to “a 17th century poet, revered for his message of love and peace” part of an “attack on Sufism.”

As the BBC notes, suspicion has turned to the Taliban, “who represent a more purist form of Islam and are opposed to Sufism, preventing people from visiting shrines of Sufi saints in areas they control.” The BBC also says that “No casualties are reported but the poet Rahman Baba’s grave has been destroyed and the shrine building badly damaged.”

According to Dawn:

The shrine’s watchman had received a threat from suspected militants on his cell phone three days ago. He told police that the attack took place to crack down on the tradition of women making pilgrimages to the site.

In spirit, the attack on the Pashtun poet’s shrine in Pakistan seems to echo one of the Afghan Taliban’s most infamous acts of cultural cleansing: the destruction of the Great Buddhas of Bamiyan in 2001. But, surprisingly, the Taliban leader who ordered the attack on the “idols” at Bamiyan, Mullah Muhammad Omar, might not approve of this bombing in Pakistan, or, for that matter, the attack on the Sri Lankan cricket team and its Pakistani police escort in Lahore.

More…

Jim Sinclair’s Commentary

"Eric the Gold" speaks about what might well be another difficult situation; a situation that many of your retirement plans are involved in.

As Safe As Gold
Sprott Asset Management
February 2009
Eric Sprott 
Sasha Solunac

What are phrases that connote safety? Two that come to mind are: “Like money in the bank” or “As safe as houses”. Given events of the past year, these two phrases no longer seem to hit the mark, do they? These days, the one word that signifies safety is “gold”, being far safer than both cash and houses. It therefore stands to reason that a more accurate phraseology would be “Like gold in the safe!” or “As safe as gold!” Yes, the barbarous relic is back… and with a vengeance.

As our readers may have already surmised, we like gold around here, and evidence suggests the world is beginning to like it more and more too. We therefore hope our readers can forgive us for harping on the same theme over and over. For the past seven articles including this one, the subject of gold has been a dominant theme, if not the prevailing theme in four of these articles; namely, “The Phony Express” (August 2008), “Cash or Gold” (October 2008), “Surviving the Depression” (December 2008), and now “As Safe as Gold”. Although we may seem obsessed, there is a method to our madness.

Not coincidentally, the past seven months have also coincided with the worst financial crisis the vast majority of us have ever seen in our lifetimes, as well as the worst global economic contraction the world has seen since the Great Depression. As we wrote in our previous article, “So You Think 2008 Was Bad? Welcome to 2009”, the world is currently in an environment where weakness only begets more weakness, and furthermore, the olden days of economic prosperity through endless credit creation are likely never coming back. That’s right; we believe there has been, and will continue to be, a paradigm shift in the way financial markets function going forward. We believe this last point is a very important distinction to make – one that fundamentally distinguishes the current environment from a run-of-the-mill recession. The implication is that current government policies, which are all focusing on bringing the olden days back (this time through endless government credit/debt creation) are in fact ruinous strategies that will have dire implications for financial stability and investment portfolios going forward.

If one believes the above (indeed, it seems increasingly difficult not to), then it should go without saying that, from an investment perspective, these are extremely challenging times. It has become very difficult to preserve wealth, let alone create it. Just like a rising tide lifts all ships, a receding tide tends to ground them one and all. You could have bought almost anything in 2003-2007 and made money (provided, of course, you got out by the beginning of 2008!) Likewise, right now you can buy almost anything and lose money. Those who have been “bargain hunting” on the way down have been taken to the cleaners. There was a time not that long ago when big bank stocks were considered conservative and ‘safe’ investments. Today this notion seems laughable. Bank stocks are now the biggest dogs on the planet – the common equity of which, in its current form, will be shown to be completely worthless in our opinion. Thus, buying bank stocks remains a sucker’s game – at any price. But there isn’t much solace to be found elsewhere. The direction for almost everything, in any industry, remains down. You show us an investment and we’ll tell you why it’ll lose money.

More…

Jim Sinclair’s Commentary

Some subjects seem to evade CNN.

BUDGET BACKLASH: Thousands Rally At City Hall
Taxpayers Furious With Budget Cuts Take Frustration To Streets Of NYC
Organizers Say 50,000 On Hand For ‘Rally For New York’

NEW YORK (CBS) ― A massive budget backlash came to lower Manhattan on Thursday. Tens of thousands of New Yorkers marched on City Hall, rallying to stop proposed funding cuts.

The rally cries of labor unions, community groups and families outside City Hall could be heard throughout lower Manhattan. Desperation for an economic lifeline brought out more than 50,000 people along several blocks of Broadway in a self-described "Rally For New York."

Their message for Gov. David Paterson came in the form of booming chants:

"No more cuts! No more cuts!"

Everyday New Yorkers had their own personal messages for the governor as well.

"Governor Paterson, I wish you could have an open heart that we are going to suffer if this budget cut goes through," said China Lankford of Jamaica.

More…

Posted at 6:03 PM (CST) by & filed under Jim's Mailbox.

Dear CIGAs,

I would like to extend a very special thanks today to CIGA Green Hornet for his friendship and help.

Dear Jim,

First Mrs. Bhutto gets killed after she repeatedly voiced her concerns about security. Now it looks as if the same thing happened to this cricket team. I think the writing is on the wall that Pakistan is truly out of control! Terrorists who kill people do not get away unless they have help from law enforcement. This shows again how you have been years ahead warning us of Pakistan’s collapse.

Best,
CIGA Big Tatanka

Suspicions grow that attack was ‘inside job’
Conspiracy theories fuelled by security lapses as hunt for gunmen continues
By Omar Waraich in Lahore
Thursday, 5 March 2009

Dramatic footage showing the alleged perpetrators of Tuesday’s audacious attack on the Sri Lankan cricket team making their getaway was released by a Pakistani news channel last night.

The grainy images, captured by four CCTV cameras minutes after the ambush, show the gunmen strolling calmly through the back streets of Liberty Market just before 9am. In one sequence, three of the men walk down a narrow, deserted street, carrying heavy bags and with weapons slung over their shoulders. They then mount a waiting motorcycle and speed away.

Yesterday, police released "wanted" posters bearing sketches of the suspects. Up to 14 masked gunmen took part in the attack on the Sri Lankan team’s tour bus at the Liberty Square roundabout in the heart of Lahore. They opened fire on the bus, killing a driver and six police officers escorting the Sri Lankans. Six players and two assistant coaches were wounded.

More…

Dear Jim,

Shadow Government Statistics (SGS) www.shadowstats.com and their CEO John Williams estimate that 899,000 people lost jobs in the last month after adjusting for seasonality in the numbers, and there was a restatement upward of job losses in Jan 2009 and December 2008.

If you count discouraged workers…

According to Shadowstats.com non-farm unemployment may have hit 34% in the Great Depression. Economists say total unemployment hit 25%, but the agricultural sector where employment was higher was a much larger percentage of total employment than it is today. Thus, even though data is hard to gather on the great depression, the numbers may be correct.

Today’s official unemployment numbers are quite suspect. To quote SGS “During the Clinton administration, ‘discouraged workers’- those who had given up looking for a job because there were no jobs to be had – were redefined so as to be counted only if they had been "discouraged" for less than a year. This time qualification defined away the bulk of the discouraged workers. Adding them back into the total unemployed, actual unemployment, as estimated by the SGS-alternate unemployment measure, rose to about 19.1% in February from 18% in January.

This is a lot of people, and it is closing in on the very high numbers seen during the Great Depression. For this reason I continue to contend that we are in a depression.

Respectfully yours,

Monty Guild
www.GuildInvestment.com

Dear Mr. Sinclair,

For your information:

A thriller by the Swiss writer Mathias Frey titled "Excess". Unfortunately it is only available online at this time in German. I don’t know why he hasn’t found a publisher or contacted a film producer. This is Wag the Dog squared, easily. A triple-A page turner.

http://www.excess.ch/

Have a good weekend,
CIGA Annette

Jim,

It looks like the mainstream media has finally identified the problem. Will DC figure it out and repent before it is too late? Ha! Not a chance!!

CIGA Jeff

Dear Jeff,

We wish it was only $700 trillion. The real number is one quadrillion, one thousand and one hundred forty-four trillion, notional value. The BIS has skewed the figure by moving to a cartoon computer model called value to maturity. Notional value becomes real total value upon bankruptcy.

Regards,
Jim

The $700 trillion elephant
Commentary: Gargantuan derivatives market weighs on all other issues
By Thomas Kostigen, MarketWatch
Last update: 12:01 a.m. EST March 6, 2009

SANTA MONICA, Calif. (MarketWatch) — There’s a $700 trillion elephant in the room and it’s time we found out how much it really weighs on the economy.

Derivative contracts total about three-quarters of a quadrillion dollars in "notional" amounts, according to the Bank for International Settlements. These contracts are tallied in notional values because no one really can say how much they are worth.

But valuing them correctly is exactly what we should be doing because these comprise the viral disease that has infected the financial markets and the economies of the world.

Try as we might to salvage the residential real estate market, it’s at best worth $23 trillion in the U.S. We’re struggling to save the stock market, but that’s valued at less than $15 trillion. And we hope to keep the entire U.S. economy from collapsing, yet gross domestic product stands at $14.2 trillion.

Compare any of these to the derivatives market and you can easily see that we are just closing the windows as a tsunami crashes to shore. The total value of all the stock markets in the world amounts to less than $50 trillion, according to the World Federation of Exchanges.

More…

Jim,

31 million Americans means that 10% of the American population is on food stamps. I will be interested to see what this number is by next year. Tough economic times indeed!

Cheers,
CIGA Cheryl

Food stamp enrollment jumps to record 31.8 million
Thu Mar 5, 2009 3:34pm EST

WASHINGTON (Reuters) – A record 31.8 million Americans received food stamps at the latest count, an increase of 700,000 people in one month with the United States in recession, government figures showed on Thursday.

Food stamps, which help poor people buy groceries, are the major U.S. anti-hunger program, forecast to cost at least $51 billion in this fiscal year ending September 30, up $10 billion from fiscal 2008.

"A weakened economy means that many more individuals are turning to SNAP/food stamps," said the Food Research and Action Center. Last summer food stamps were renamed the Supplemental Nutrition Assistance Program, or SNAP.

The average food stamp benefit is $115 a month for individuals and $255 a month per household.

Enrollment for food stamps in December was up 2.2 percent from the previous month with increases in all but three states. Ohio had the largest increase among large states, up 3.4 percent, to 1.26 million people. Texas had the largest enrollment, 3.05 million, up 1.8 percent.

The previous record for food stamp enrollment was 31.6 million last September, which included "disaster" stamps for states hit by hurricanes and floods.

In April, food stamp benefits will increase temporarily by 13 percent under provisions of the recently enacted economic stimulus law. Ellen Vollenger of the Food Research and Action Center said some families will see increases of $80 a month.

More…

Posted at 3:54 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

The big development for today is the price action in the US Dollar, especially in the light of the continued sell off in the US equity markets. By now you all know that the Dollar has been trading inversely to the stock market moving up on lower days in equities and moving down when (the few times) equities have moved higher. That is the result of safe haven flows. Today that came to a rather inglorious end. I noted yesterday that the Dollar was acting weak. Today’s move lower is therefore important as it shows follow through to the selling that began as the Dollar approached technical resistance near the .90 level on the USDX in yesterday’s session.

I am hesitant to call a top in the Dollar just yet because it has been frustrating would-be bears for some time now but its inability to push through the significant .90 level will not go unnoticed by technicians. The monthly chart is showing bearish divergence on the RSI which is also at levels last seen back in the year 2000 so it is at levels commensurate with downturns. The Dollar would have to drop down below .82 to turn the weekly and monthly charts into decidedly bearish patterns. The longer term moving averages however are trending higher so it is a short-term play until those definitively turn down.

Crude oil continues to exhibit resilience in the face of weaker equities which is also telling. While I am not suggesting it is about to immediately embark upon a new bull run, it certainly is looking more and more like a solid bottom is in that market. A further period of basing action is the more likely outcome rather than a new bullish uptrend but that is the thing that eventual bull markets are made of. Supply is drawing down as projects are shut in and with OPEC cuts taking effect, we look to be balancing supply against the new demand level. Any changes in demand will therefore push crude out of a basing pattern and into a trend. A close above $50 would be significant in that regards. That will help gold in my opinion as it will signal a shift out of the deflationary mindset. Keep in mind that many commodity markets appear to be close to bottoming and that at some point, the fears of deflation will give way to fears of inflation – all of which is friendly to gold.

Gold was capped at $940 in New York even in the face of swooning equities. It certainly seems that the gang of usual sellers are active near that level. Bulls will have to shove them out of their lair and move prices to $960 to give gold a shot at resuming its uptrending move and a chance at $1,000 once again.

As I write this, the HUI is trading above the 290 level. If it can hold its gains into the close and maintain this level it will bulls a real chance at pushing this index back into a friendly posture but it will take a weekly close above the 323 level to get the uptrend in the HUI going once again. The XAU looks a bit stronger than the HUI. It has turned its daily chart back to friendly with today’s gains (again – assuming it can hold those gains into the close). IT will take a weekly close above 132 to give bulls a shot at resuming the uptrend in the stocks that make up that index.

Bonds, after yesterday’s torrid gains, attempted to mount a charge higher at one point but were derailed when a Fed official put the kibosh on any idea of immediate Fed purchases out along the long end of the curve. That brought supply fears back to the forefront of traders’ minds and kept sellers active. They are still maintaining some gains with the lower equity markets but the bulls had the wind knocked out of them and will need to reassert themselves soon if they want to turn the weekly chart positive. Right now it is still a series of lower highs.

There is no need to mention the jobs number, or rather, lack thereof. We all know they stink and so does the rest of the Street. American Expresss dropped below $10.00 today. It is quite breathtaking to see the share prices of these “blue chips”. I would suggest that they rename them as “red chips” because all I see in there is bleeding with the Dow looking more and more like it is headed down below 6,000. It is pretty frightening to behold the extent of this carnage seeing that the DOW has now retraced more than 50% of its entire move off the Great Depression lows and it has done this in a matter of 7-8 months time. The amount of wealth destroyed, or better, vaporized, is horrendous. That value represents the hopes and dreams of millions of our fellow citizens. What is even worse is the plan being put forth to supposedly arrest this debacle contains nothing whatsoever to reverse it but rather threatens to turn it into a deep, long lasting depression.

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

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