Posted at 3:11 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Here comes the index funds and the hedge funds on the return to the “anti-dollar” move.

You will recall they all began a mass exodus beginning in July of last year that took many months to complete as they had built a massive long position across the entire gamut of commodity markets. Those long positions were as much a play on the weaker dollar as they were on a move to hard assets or tangibles as investors were fearful of the spectre of runaway inflation with the Dollar the probing new life time lows. That all came to a screeching halt as risk aversion and the need for cash to meet both redemption requests and margin calls resulted in a wholesale repatriation of funds from emerging markets abroad and a huge reversal in the Yen carry trade. We all know the results of that by now having watched it unfolding before our eyes – the Dollar embarked on a sharp move higher which sent commodity prices crashing alongside of equities as every single commodity market was crushed with not even gold being spared for a short season before it took on its historic safe haven role.

What we are now seeing continue this morning after beginning yesterday, are these same exact players who bailed out en masse, now returning en masse to the commodity markets as the long term implications of the Fed’s announcement becomes crystallized in the minds of investors world wide. The death knell of the US Dollar was just rung by Bernanke and company – we wonder how many heard it. Their action guarantees that the US will experience at some point in the not-too-distant future soaring inflation with the increasing likelihood of a hyperinflationary event following.  Think about what they announced and sweep aside all the high-sounding phrases and flowery rhetoric – they are going to create in excess of US $1 trillion out of thin air and buy US debt . This is the very monetization that we have been predicting they would be forced to resort to but which we were somehow hoping could be avoided for the sake of our nation’s future.

The cards have been dealt and the Fed has shown its hand – with the US embarking on a spending spree that makes the word “orgy” too mild to describe it, they have decided to devalue the currency and debauch our Dollar. They have no other choice now short of defaulting on our debt obligations. I am not sure how this is going to go down with the Chinese who have become our largest holder of US debt but I would strongly suspect that the Chinese will move with even greater speed in their reserve diversification process. I also suspect that the recent chatter coming from several quarters about the need to have a new global reserve currency or some combination thereof is going to garner more earnestness.  If the path which the Fed has chosen to follow were being implemented by any other nation on the face of this earth, the currency of that nation would immediately become practically worthless overnight. The only thing that allows the Fed to get away with this con is the fact that the Dollar is the global reserve currency. How do you think this is going to sit with other nations around the world? I am both sickened and angered by what these men, who were given a stewardship of our national currency, have done to us. As I have said many times before, I would much prefer to see a sound US economy, sound monetary policy, a balanced budget and responsible spending and taxing policies. Instead we have the worst of all possible worlds. All we can now do is to attempt to protect our wealth from the ravages that are going to be inflicted upon it. It is coming and nothing can avoid the consequences of this action.

Gold continued its torrid reversal off the lows made early in yesterday’s session. It experienced a bit of selling during the Asian session last evening as shorts were trying to push it back below the technically significant $930 level. They failed. It ran right on into the heavy resistance band on the charts near $960 this morning which is the level that is so critical for the shorts to defend if they are going to prevent an almost immediate return to the $1000 level. A breach of $960 that can hold that level for a couple of hours and many of the shorts will cover. That will also bring in fresh money from the momentum funds which have been sitting on the sidelines who are watching to see if that level will fall before their algorithms kick in.  See the chart for the technical levels…

Yesterday’s volume readings in gold were huge with over 269,000 contracts trading hands. I have not yet had time to check it against the data base but it certainly was one of the largest volumes I can recall seeing. Interesting enough open interest increased only a relatively minor amount in that wild session indicating that a whole lot of hurt was administered to both longs and shorts yesterday.

The HUI and the XAU both ran right up their recent swing highs and are attempting to gather enough momentum to break above those levels. For the HUI that means a breach of the 326- 328 level need to occur and hold to set up a solid trending move higher. The XAU looks a bit stronger technically than the HUI as it breached its former swing high near 135 but it needs to push above there a bit further for a bona fide breakout to occur. The move in both indices is occurring with several technical indicators on the daily charts not yet in the overbought zones so they are primed technically for further gains if the bulls can perform and the shorts will blink. Stay tuned on this one. The weekly charts show both indices right on the 50 week moving average so how they can finish out this week will tell us a great deal about what to expect moving forward. If they can best the 50 week average, then the next target is the 100 week moving average.

The Dollar – what can one say about it now except that the charts have turned decidedly ugly. A look at the weekly continuous chart shows what could very well be a long term double top at the 90 level on the USDX. It would take a weekly close below the 79 level to confirm that but all of the technical indicators are showing very strong bearish divergence signals on that same chart. There is support at the 40 week moving average near 81.60 and then again at the 50 week moving average near the 79.90 – 80.00 level. If those were to fail, it would not take a lot of time to see the dollar move back down towards it all time lows. Remember that there is or should I say was, a sizeable speculative long contingent in the Dollar according to the recent COT reports. Those folks rushing into the long side of the dollar for a safe haven play were blindsided by Bernanke and company. Nothing like a long side spec flush as the friends of gold can well attest to after having watched so many of them for the last 8 years.

I have been monitoring the action in the bond market this morning as I was particularly interested in seeing whether we would get much more in the way of upside action after that mind-boggling, stunning move yesterday. The Fed has obviously moved to put at least a short term bottom in the bond market – technically it cannot be argued otherwise, but what I am personally watching is to see just how high bond traders can take this thing especially with outside support that in the past was forthcoming from foreign Central Banks, particularly the Chinese, Japanese and the OPEC block of nations. Keep in mind that with the slowdown in global trade and the drop off in Chinese and Japanese exports, not to mention the big drop off in OPEC oil revenues, there is a lot less in the way of Dollars that need to be recycled into US Treasuries from those sources. That is a very large chunk of buying that has evaporated from the bond markets at the same moment in time that the supply is being ramped up exponentially. That is not going to be lost on traders although many shorts are no doubt a bit hesitant to step back in front of those things after the shellacking they received yesterday. The question traders will be asking is whether the announced Fed buys will be sufficient to offset the drop off in buying from abroad. We will see soon enough.

Equities gave up a good portion of their gains from yesterday (at least they have as I am writing this). Perhaps the euphoria has run smack dab into reality.

I might mention here that the Fed’s quantitative easing looks to have been the spark that took crude oil up and over the $50 level. That is no mean feat especially considering the fact that we were swimming in a sea of the stuff for the immediate term. You might recall that crude oil became a proxy for the ills of the US Dollar back during the commodity boom of recent memory with many investment funds pouring money into the black gold as an inflation hedge. At the time many commercials were bewailing the fact that the specs were driving prices beyond the boundaries of fundamental value but they were powerless to halt the rise. With the global economy as sick as it currently is, the conditions are obviously different than before the bubble burst but the fact remains that many investors have come to view crude oil as a play on inflation. That must be respected. We would all do well to also recall Monty’s recent missive on crude oil and his astute observations on the long term outlook for the gooey stuff (how is that for  proper, sophisticated nomenclature?).

Let’s keep watch also on the commodity currencies, the Aussie, Kiwi and Loonie to see how they fare. All are up today against the greenback. If the focus of the markets shifts to inflation fears away from deflation fears, those currencies should benefit. I am wondering what the Swiss monetary authorities must now be thinking after watching every single bit of the fruits of last week’s foray into the Forex markets to knock the props out from under the Swissie go up in smoke. The Swissie not only took back all of its losses; it even added more gains just for spite. I am curious whether they will come back in and try again.  I would also venture to say that the Swiss monetary authorities must be FUMING at the US Fed right about now. With the Dems in Congress poking them in the eye over Swiss bank secrecy and picking on UBS, it is not too much of a stretch of the imagination to state that US/Swiss relations are probably at an all time low. The only question I have now is who is going to be next in this game of musical chairs of currency devaluation that is taking place.

One last thing – the collapse in the Dollar with the subsequent strong move higher in the competing major currencies has pushed the gold price down in those terms. We will want

to see how gold responds to this in the days ahead as the ideal environment for the yellow metal is a simultaneous move higher in terms of all major currencies, and not just in US Dollar terms. I would prefer to see Euro-priced gold keep its footing near the €700 level and British Pound priced gold hovering near the 650 level and then moving higher. That would indicate that the ferocious gold buying that had been coming out of Europe and Britain a few weeks ago was not just a flash in pan but can be sustained.

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

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Posted at 7:20 PM (CST) by & filed under Guild Investment.

Dear CIGAs,

FASB 157: Be careful what you wish for.

Removing the mark to market rules may give a short term rally to bank stocks, but it could easily turn out to be a disaster for banking, for the US taxpayer and the US economy.

For those who remember the Japanese banking crisis and ensuing malaise, Japan is moving toward 2 decades of deflation and low or no economic growth.

In Japan, failure to fairly value bank assets kept banks from writing off bad assets and thus kept them from performing their first function, to make loans and act as a clearing agent for economic activity. Watch out and be very careful what you wish for… the same thing could and possibly will happen in any country that removes mark to market requirements.

This is a key issue and one which Jim Sinclair knows a great deal. Listen carefully to his wise advice on this subject.

In other news, Competitive Devaluations of currencies are underway.

Time line… Britain(a few weeks ago) introduces Quantitative Easing. Result: the Pound falls decisively.

Then we saw Swiss intervention to lower the Swiss Franc… then US Quantitative Easing (QE) today.

This means although major nations such as these talk free trade and no tariffs or only limited tariffs they are actually fighting a trade war with competitive devaluations of their currencies.

The US is the latest to announce the obvious. They are using QE to devalue the dollar and to serve other purposes as well. This can only be very positive for gold and negative for the US dollar long term.

Jim Sinclair has called for this repeatedly and he is once again correct.

Some of you did not listen to him and bought gold or gold shares on margin. Some people further aggravated the problem by buying the rallies and selling the declines. You were in effect doing the opposite of what Jim instructed you to do.

In my opinion, the first characteristic of successful investors and traders is that they take responsibility for their own actions.

Respectfully yours,

Monty Guild
www.GuildInvestment.com

Posted at 7:16 PM (CST) by & filed under Jim's Mailbox.

Dear Friends,

If the Comex thinks they have me scared of gold suggest they look at this.

http://sendables.jibjab.com/view/wehWidIODtlC0vk0

Regards,
Jim

Jim,

Ha:

"The International Monetary Fund is poised to embark on what analysts have described as "global quantitative easing" by printing billions of dollars worth of a global "super-currency" in an unprecedented new effort to address the economic crisis. "

Amazing what is spun as anti-gold. Super currency? Who are they fooling?

CIGA Eric

Posted at 5:16 PM (CST) by & filed under Trader Dan Norcini.

Dear Friends,

The events that have transpired since the writing of my midday commentary are so stupendous that I felt a few comments were in order.

The news that the Fed would be buying $300 billion of long-dated Treasuries sent the bond market into what can only be called a frenzy. In all the years I have been trading, I have never seen anything quite like it. We are talking about a move that carried from 123^25 to 132^18. The drop in yield was nothing short of breathtaking. The effect on the yield curve was to flatten it considerably. If the idea was to give the banks some ability to borrow short and lend long and profit from the recently steepening curve, that just went up in smoke but apparently the thinking is that the Fed can artificially force down long term interest rates and this will have a beneficial effect on the comatose housing market. Hey you morons – why not just hand out money directly to every taxpaying citizen in the country? After all, you can just print more of it whenever we need it… God help us all…

The effect on both the Dollar and the gold price was instantaneous. The Dollar collapsed as well it should have while gold shot up nearly $60 of its worst levels of the session.

Folks – it is my sincere conviction that this current administration is absolutely CLUELESS in how to solve this problem and are flailing in the wind. They are throwing anything that they can think of at a wall and hoping that something will stick. These theoreticians and academics, none of whom can probably even balance their own damn checkbooks, are now attempting to run the monetary system. In the process they have just destroyed our Dollar and make no mistake about this – they are now monetizing debt – which is another way of saying they are printing money out of thin air. Is it any wonder that the Dollar cratered and gold shot up so sharply?

As a long term friend of gold I am of course pleased to see gold moving higher but as an American citizen who loves this nation, I am both sickened and angered at the amateur hour that has taken over in Washington D.C. While the Fed burns down the Dollar, the same dipsticks who helped create this mess are worried about $165 million in bonuses when they are spending over $3 trillion in debt that my children will be saddled with. And to see the chief ringleaders, Barney Frank and Chris Dodd, feigning outrage and attempting to hop on the populist bandwagon to distract attention away from the gargantuan sum of indebtedness that they have just chained to the next generation makes my blood boil.

Wake up America – these damn fools are destroying what is left of our Constitutional republic.

Obviously the technical action in gold completely erases that which transpired before the Fed announcement. Now we have to see if gold can sustain a footing above the $930 level. If it can, and it must if it is going to have a chance at trending higher, then it has a very good shot at $960. That level is what will need to be taken out in order to challenge $1000.

The mining shares as evidenced by the HUI and the XAU both launched technical breakouts smashing above the 40, 50 and 10 day moving averages and taking out horizontal resistance levels in the process. The HUI needs to take out 320-323 to set up a trending move.

Please see the gold chart below for the levels…

Click the chart below to enlarge today’s hourly action in Gold in PDF format as of 3:00pm CDT with commentary from Trader Dan Norcini

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Posted at 4:38 PM (CST) by & filed under In The News.

Dear CIGAs,

I would honestly suggest with today’s action this young man make his total $36,000,000 by the time he is 11.

Only 8 years old

Jim Sinclair’s Commentary

Mugabe is the Chairman of the Federal Reserve.

What a horrible mistake this is! Now you can count on Confetti Money.

Now you know how truly horrible the OTC derivative meltdown is. What a mess the main manufacturer and distributor of this toxic paper, the USA, is in

There is no practical solution to this problem so ignore the ignoramuses on the Comex. Use the Comex to buy every time the ignoramuses raid and sell the short squeeze if you must trade.

Fed to Buy $1 Trillion in Securities to Aid Economy
By EDMUND L. ANDREWS
Published: March 18, 2009

WASHINGTON — Saying that the recession continues to deepen, the Federal Reserve announced Wednesday that it would pump an extra $1 trillion into the mortgage market and longer-term Treasury securities in order to revive the economy.

“Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending,” the Fed said, adding that it would “employ all available tools to promote economic recovery and to preserve price stability.”

As expected, the Fed kept its benchmark interest rate at virtually zero. But in a surprise, it dramatically increased the amount of money it will create out of thin air to thaw out the still-frozen credit markets that have cramped lending to consumers and businesses alike.

Indeed, the immediate effect on the bond markets was striking, with prices rising and yields dropping sharply on the news. The yield on the 30-year Treasury bond, about 3.75 percent before the announcement, fell quickly to 3.4 percent and remained volatile. At the same time, the dollar plunged about 3 percent against other major currencies.

Stocks moved higher on the Fed action. The Dow Jones industrial average was down about 50 points before the 2:15 p.m. announcement, but within an hour it was up 120 points for the day.

More…

Jim Sinclair’s Commentary

This is right out of the Great Depression 101 text book.

We are embarking on the 1930s Civilian Conservation Corp of a modestly different mode.

This along with the central bank monetizing your own debt (Zimbabwe 2005-2009), the reinstitution of the failed SDR and the political AIG bonus straw man means that this thing is so out of control our leadership is flailing wildly in the wind.

We are in huge trouble as a nation.

Alf you are so right!

House Readies Passage of Volunteerism Bill Critics Call Pricey, Forced Service
The legislation will expand the 1993 AmeriCorps program to match the renewed interest in national service since President Obama’s election, which backers say is crucial in tough economic times.
By Kelley Beaucar Vlahos
FOXNews.com
Wednesday, March 18, 2009

WASHINGTON — The House of Representatives is expected to pass a measure Wednesday that supporters are calling the most sweeping reform of nationally-backed volunteer programs since AmeriCorps. But some opponents are strongly criticizing the legislation, calling it expensive indoctrination and forced advocacy.

The Generations Invigorating Volunteerism and Education Act, known as the GIVE Act — sponsored by Reps. Carolyn McCarthy, D-N.Y, and George Miller, D-Calif. — was approved by a 34-3 vote in the House Education and Labor Committee last week.

The legislation would create 175,000 "new service opportunities" under AmeriCorps, bringing the number of participants in the national volunteer program to 250,000. It would also create additional "corps" to expand the reach of volunteerism into new sectors, including a Clean Energy Corps, Education Corps, Healthy Futures Corps and Veterans Service Corps, and it expands the National Civilian Community Corps to focus on additional areas like disaster relief and energy conservation.

It is the first time the AmeriCorps program, which was created by President Clinton in 1993, will be reauthorized, and supporters say it will have additional funding to match the renewed interest in national service since President Obama’s election and the acute need for volunteerism and charity in tough economic times.

More…

Jim Sinclair’s Commentary

Surprise, surprise, the straw man is falling

A.I.G. Chief Expected to Offer Bonus Compromise

Edward M. Liddy, the embattled chief of American International Group, is expected to tell a House committee that he will ask employees who received widely criticized bonuses last week to give half the money back.

WASHINGTON — As the lucrative bonuses paid to employees of the American International Group fueled fresh outrage at the White House and on Capitol Hill on Wednesday, the embattled chief executive of A.I.G. said that he had asked some recipients to give at least half the money back.

The chief executive, Edward M. Liddy, made the announcement during his testimony on Wednesday afternoon before a Congressional committee investigating the problems at the insurance giant.

“I have asked the employees of A.I.G. Financial Products to step up and do the right thing,” Mr. Liddy told lawmakers. “Specifically, I have asked those who received retention payments of $100,000 or more to return at least half of those payments.”

The A.I.G. chief said that some recipients had already offered to give up all of their bonuses, and he added later that he expected to get most of the money back.

More…

 

Jim Sinclair’s Commentary

No need for the UN to propose this dollar position as it about to occur in the marketplace.

U.N. panel says world should ditch dollar
Wed Mar 18, 2009 11:16am EDT
By Jeremy Gaunt, European Investment Correspondent

LUXEMBOURG (Reuters) – A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.

Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.

Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.

"It is a good moment to move to a shared reserve currency," he said.

Central banks hold their reserves in a variety of currencies and gold, but the dollar has dominated as the most convincing store of value — though its rate has wavered in recent years as the United States ran up huge twin budget and external deficits.

Some analysts said news of the U.N. panel’s recommendation extended dollar losses because it fed into concerns about the future of the greenback as the main global reserve currency, raising the chances of central bank sales of dollar holdings.

More…

Posted at 2:52 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

It looks to me like gold’s inability to climb back over $1,000, or at the very least get back over $960 to resume an uptrending move,  in the face of such an horrific financial meltdown, brought about a wholesale liquidation of stale longs who have bailed out in both disappointment and disgust. I will continue to maintain that only the Almighty knows how much of our own TARP money was used by the bullion dealers at the Comex to overwhelm the bids that came into that paper market. As I have said before, throw a few $billion here and a few $billion there in my direction and I could have all kinds of fun with a few commodity markets. Since all of the idiots who voted in favor of this execrable bailout haven’t the faintest clue as to where the money is going or for that matter, what it is being used for, is it that far-fetched to think that a portion of it is being used by these paragons of virtue, the bullion banks, to destroy the only thing honest that is left in the financial world, namely the yellow metal? These are some of the same people who would package their grandmothers together and sell them off to a hedge fund if they thought they could make a quick buck off of it.

No matter – technically gold is looking heavy and will need to hold above today’s session low to prevent a potentially bearish head and shoulders pattern from forming on the daily price chart. Rest assured if I can see it, those same folks mentioned above can see it also. If the chart painters can prevail and force that pattern to form, we are probably going to have to sit through another one of those frequent technical washouts that have marked this bull market in gold for many years. A case could be made from the charts that a move down to near the $800 level is not out of the question although we should see quality buying enter at  the 50% retracement level near $853 on down to the 100 day moving average around the $847 level. Gold needs to hold here and hold now!

I want to mention that I am seeing a great deal of red in just about all of the various commodity markets this morning with the energies getting hit particularly hard and the grains also swooning. That indicates index fund selling which is one of the reasons gold also dropped so severely. They bail out or move into most commodity markets in sync as their nature requires them to buy or sell a broad basket of commodities when filling orders for clients. Not to mention the fact that these bear raids on gold almost always coincide with either option expiration or rollover periods, the latter which we are now seeing as the twits that run the funds must roll from April to June gold or else take delivery, something which they are apparently allergic to but which would put an end to this endless charade at the Comex. Open interest indicates that the rollover has begun.

For those of you who are so inclined to continue filling my inbox with your foul mouthed emails whenever gold moves lower, please spare me your rants about how the US economy has hit bottom and the worst is behind us and thus gold is now doomed. If you really and sincerely believe that, then please, please, put all of your money into Treasuries and stop reading the web site.

The mining shares are actually holding up pretty well considering the mauling that gold is receiving today. Then again the day is yet young.

As I am still attempting to catch back up from vacation my comments will be abridged today. Please see the chart for some additional technical aspects.

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

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Posted at 2:17 PM (CST) by & filed under In The News.

Dear CIGAs,

Remember our repeated discussions a while back about the Slowest Train Wreck in History, Fannie and Freddie? How many times were the shorts run out? The answer is on every rally in the general indices.

Gold is exactly the same in reverse. At every opportunity the Comex paper shorts raid gold and run out the longs.

Just like the shorting of Fannie and Freddie turned out to be one of the best and safest plays in the market, long gold will also prove to be a safe play as it rises to my and maybe Alf’s goals, supported by Armstrong’s research.

Today you are being had yet again.

 

Jim Sinclair’s Commentary

Today’s decline in gold has nothing to do with SDRs.

There is nothing new in SDRs as they are 40 years old this year. Their introduction in 1969 was one of the reasons for the bull market in gold from 1968 to 1980.

What you are witnessing is the COMEX paper gold manipulators once again having their way with you.

Assuming no one of size wishes to take delivery out of the Comex warehouse, then this is a perma-experience as gold rises to $1224, $1650 and beyond.

It assures that very few of you will be left in gold or silver, having decided to go out into the cold. Some of you may even put all you have in SDR bonds.

Nothing assures a top in the US dollar better than SDRs.

Gold is a currency, has been a currency for all written history and will prove itself so in 2009.

The US dollar is as much a bubble as were tech stocks. The USDX is what an SDR is. The US dollar will trade at .8200, .7200, .6200 and below.

The frustration that the COMEX will deliver to you if unopposed will certainly take out 75% of whatever is left of the gold gang. It will prove once again that it is the Goldman’s of the world that make the real money in gold.

Today is a pure paper manipulation.

 

Jim Sinclair’s Commentary

I have two observations here:

1. The US dollar represents a banana republic monetarily.

2. Compared to the nominal amount of derivatives outstanding at above one quadrillion (past BIS truthfulness, a number that has since been degraded), 11 trillion is chump change.

3. If you throw your gold away for dollars you are mad victims of the majors on the Comex.

National debt hits record $11 trillion
By MANU RAJU | 3/17/09 6:42 PM EDT

The eye-popping national debt surpassed $11 trillion Monday, the largest in U.S. history.

The new Treasury Department figures on the national debt were released as the non-partisan Congressional Budget Office is expected to project that the annual budget deficit will be higher than previously estimated by the White House’s Office of Management and Budget. The debt, which refers to the cumulative amount of money the government owes, hit $10.9 trillion on Friday.

The whopping number has major ramifications for President Barack Obama, who is trying to push through a raft of big-ticket bills on health care, energy, education and climate change — while also attempting to stabilize the swooning economy.

Sen. Kent Conrad (D-N.D.), chairman of the Budget Committee, said Tuesday that the numbers could force Congress to make "adjustments" to Obama’s $3.6 trillion budget plan.

"It’s very important get a result for the American people and one that has the priorities that have been [announced] by the president in terms of reducing our dependence on foreign energy, that’s in all of our interests, excellence in education, health care reform and dramatic reduction of the deficit,” Conrad told reporters. “Those will be our guiding principles as we go forward, but as I say, we’ve not yet seen CBO’s new numbers. But I think we can all anticipate because they were done substantially later than OMB’s, that they are going to be more adverse. That that’s going to require all of us to make adjustments.”

More…

Jim Sinclair’s Commentary

Have you ever felt you might be on the wrong planet?

FDIC Criticizes Massachusetts Bank With No Bad Loans for Being Too Cautious
Tuesday , March 17, 2009

A Massachusetts bank that has defied the odds and remained free of bad loans amid the economic crisis is now being criticized by the Federal Deposit Insurance Corp. for the cautious business practices that caused its rare success.

The secret behind East Bridgewater Savings Bank’s accomplishments is the careful approach of 62-year-old chief executive Joseph Petrucelli.

"We’re paranoid about credit quality," he told the Boston Business Journal.

That paranoia has allowed East Bridgewater Savings Bank to stand out among a flurry a failing banks, with no delinquent loans or foreclosures on its books, the Journal reported. East Bridgewater Savings didn’t even need to set aside in money in 2008 for anticipated loan losses.

But rather than reward Petrucelli’s tactics, the FDIC recently criticized his bank for not lending enough, slapping it with a "needs to improve" rating under the Community Reinvestment Act, the Journal reported.

More…

Jim Sinclair’s Commentary

We do not need Russia to weaken the US dollar. The Fed and the Treasury are totally capable of that.

The dollar death nell is contained in:

SDRs (just as it was in 1969).

The Zimbabwean approach to monetizing your own debt as per the Fed purchase of US Treasuries.

Russia bids to topple cash system
MOSCOW
17/03/2009 1:00:00 AM

Russia has unveiled radical plans for sweeping global financial reforms designed to weaken US dominance and consign an ”obsolescent” world economic order to the past.

The Kremlin said in a six-page document addressed to the upcoming Group of 20 summit in London the downturn was the result of a collapse of the existing financial system due to poor management and inadequacy. It said the crisis showed the need to abandon traditional approaches and adopt collective and globally agreed decisions aimed essentially at developing a globalisation process management system.

The document spelled out five principles on which a ”new international financial architecture” should be based and offered proposals in eight specific areas for the G20 to consider, including reform of the international monetary and financial system, reform of the system’s institutions and tightening international regulation and financial supervision. Russia said the London summit should agree on ”parameters” of a new financial system but should be followed by an international conference to adopt conventions on new regulations. AFP

More…

 

Jim Sinclair’s Commentary

Ever heard of the political maxim of building a straw man and tearing it down to demonstrate you are doing something for the man in the street?

Outcry Builds in Washington for Recovery of A.I.G. Bonuses
By JACKIE CALMES and LOUISE STORY
Published: March 17, 2009

WASHINGTON — The bonuses that the American International Group awarded last week were paid to 418 employees and included $33.6 million for 52 people who have left the failed insurance conglomerate, according to the office of the New York attorney general.

The company paid the bonuses, including more than $1 million each to 73 people, to almost all of the employees in the financial products unit responsible for creating the exotic derivatives that caused A.I.G.’s near collapse and started the government rescue to avoid a global financial crisis.

A.I.G. has received nearly $200 billion in federal bailout funds.

The information adds to the firestorm confronting the Obama administration and Congress since the weekend disclosure that A.I.G., almost 80 percent owned by the government, paid out $165 million in bonuses.

Even before the New York attorney general, Andrew M. Cuomo, divulged the new data on bonus payments in a letter to Representative Barney Frank, the Massachusetts Democrat and chairman of the Financial Services Committee, the White House and Congress separately were rushing to get out in front of the mounting public furor. Officials and lawmakers condemned A.I.G., pointed fingers at each other and promised speedy action to recoup the taxpayers’ money.

More…

Posted at 12:10 PM (CST) by & filed under Guild Investment.

Dear CIGAs,

OIL PRICES

Each year, we talk to many informed sources about oil and we attend many oil and energy conferences.  As a result of extensive research, we believe that oil prices have seen their low for 2009.

Some readers may be asking themselves "how is this possible?"  The world economy is in a serious recession.  Major countries, such as the U.S., all major European countries, and many others are in what many observers are starting to call a depression.  The few growing countries like China and India are not growing fast enough to support the rest of the world.  How can oil prices be bottoming?

Let’s review a little history – As you all remember, oil peaked in July 2008 at $147/ barrel.  It then proceeded to fall, declining to the $34/barrel range last month, before rallying to the current level of about $45/barrel.  In January 2008, expert sources that we follow were saying that oil would peak in June 2008.  Although they were a little low on their estimate of the eventual peak price, these experts pointed out correctly that events in Russia in 2006 and 2007 were the main cause of oil’s rapid price rise in late 2007 and early 2008…and that the rise was likely to be short lived.

EVENTS IN RUSSIA?

Saudi Arabia is well known as being the world’s swing producer of oil, a role that they have undertaken for decades.  When world oil production is too low and prices too high, Saudi Arabia often lifts production to lower world prices.  This keeps the demand for their large, relatively inexpensive oil reserves strong, and it keeps nations from pursuing alternatives.  On the other hand, when oil prices are too low, Saudi Arabia will often cut production to buoy world prices so that oil trades in a more stable (but still quite profitable) range. 

In 2006 and 2007, Russia repeatedly boasted that they could produce 2½ million barrels more oil per day than they were producing.  These production claims turned out to be a ploy.  This posturing was intended to make Russia look more powerful to Europe, which is a big consumer of Russian oil and gas, and to keep the Russians influential among the former Soviet states which were now independent.  In short, Russia was using their claim that they could produce more oil, as a foreign policy lever to keep former Soviet states in their realm of influence and to leverage their power with Europe. 

Saudi Arabia was taken in by the Russian announcements, and began to cut production to stabilize prices.  The Saudis believed that the extra Russian production would create an oil surplus and a big price decline.

Of course Russia was unable to produce the extra 2 ½ million barrels a day.  Thus, world supply, instead of seeing the surplus that Saudi Arabia feared, started to see a substantial shortage of oil.  This drove the price of oil relentlessly higher.

By late 2007, our source says that Saudi Arabia realized their mistake and had begun to produce more oil.  The problem with oil production increases and decreases is that they are slow to manifest in the end markets.  It takes months to increase production, and it takes even longer for world inventories to be filled and speculators to realize that the shortage of oil has ended.

It was not until July 2008 that investors and oil consumers became aware that Saudi Arabia had increased production enough to fill much of the worlds’ oil storage capacity. Concurrently, a world economic decline was taking place and demand for oil in transportation, manufacturing, and other areas was falling…clearly oil was overpriced.  In just eight months, the price of oil fell dramatically to $34 / barrel.

This brings us to late 2008 and early 2009.  Since September 2008, OPEC, led by Saudi Arabia has cut daily production by about 4.2 million barrels per day.  During the same period, worldwide demand has only fallen by half as much.  The production cuts have removed much of the surplus of supply over demand.  Storage of oil has been drawn down, especially at major hubs such as Cushing, Oklahoma in the U.S.

Consumers of energy, such as transportation organizations, utilities, and manufacturers have once again begun to purchase energy for future delivery so that they will have available supply at an acceptable price.

In summary, we may be in a recession in some parts of the world, and a depression in other parts, but we still use energy…and current prices appear to be unacceptably low.

Crude Oil-NYMEX

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In our opinion, new oil cannot be discovered at a price where it can be delivered to consumers for less than about $50 per barrel.  If we are correct in our analysis, oil prices have to rise to the level where oil professionals will expend capital to search for more supplies.  By 2020, the U.S. Dept of Energy says oil production will go to 100 million barrels per day.  We believe this is an impossibly optimistic number.  Unless world oil prices skyrocket to the level where very expensive oil resources like the oil sands of northern Canada can be mined, this target is grossly off the mark.  Remember, depletion causes a decrease in global oil production from existing wells each year, and depletion is relentless.  The oil market analysts that we respect believe that supply will go to about 75 million barrels per day by 2020.  In 2020, we anticipate that world oil demand will be greater than production by about 4 million barrels per day.  This implies that oil prices will go much higher over the next 11 years.

OUR BEST GUESS IS THAT OIL WILL AVERAGE $60 per barrel over the next two years.  It will fluctuate around this level to be sure, but we see $60 as an average.  We plan to buy oil stocks on declines over the net few months.

U.S. BUDGET

Mr. Obama’s budget puts federal government spending from 20% of GDP to almost 30% of GDP within 2009.  All we can say is WOW! 

In February, the stock market collapsed when the budget was announced. By early March it had become extremely oversold.  It was set up for the welcome rally, which we are currently experiencing.  We will enjoy the rally while it lasts, it could easily lead to a 25-40% rally.  In our opinion, after the rally, we will return to the bear market environment which we have seen since late 2007. 

FINANCIAL PROTECIONISM

This is a major problem that has recently been noted in the excellent publication The Institutional Strategist by its proprietor, Larry Jeddeloh.  The web site is: www.tisgroup.net

Why do people complain if U.S. banks make loans to Dubai?  It is a global world, and banks everywhere have long made loans to governments and companies outside of their own borders.  If financial protectionism continues and grows, it will be like trade protectionism, a result of poorly thought out legislation.  We guarantee that it will be devastating to world economic well being and will substantially extend the current economic malaise.

SUMMARY

The current stock market rally was expected, and we believe that it can carry stocks about 25% above their recent lows, which will still leave them down for 2009.  We recently did some bottom fishing in financial shares and energy shares, and have been enjoying the rally.  These are short term trading positions only because longer term, we expect the global markets will continue to struggle under the weight of weak economic activity.

For the long term we believe that gold, oil and agriculture investments will provide long term positive results.  We still see the U.S. dollar as a potential time bomb.  At some time, the buyers of the trillions of dollars of U.S. bonds being floated to finance the federal debt, will balk and demand a lower currency or higher interest rates before they buy any more bonds.  If the U.S. were to raise interest rates, the economy would be in danger of collapse, so the only option is a lower dollar.  The Chinese, who are nobody’s fools, are aware of this and nervous about it as well.  To read more, click this link: Financial Times

 

REMINDER, FOR A LIMITED TIME…

For no charge, as a service to our readers, we will be happy to examine your current investment portfolio, and explain how we might restructure it to meet your needs for income and capital appreciation in the current environment.  In recent weeks, we have received a number of requests to review investment portfolios and have been responding to them as time permits.  In order to provide a more meaningful evaluation of your portfolio, we will need additional information about your overall financial picture.  Please give us a call if we can help you in this regard.  

Thanks for listening.

Monty Guild and Tony Danaher
www.GuildInvestment.com