Jim Sinclair’s Commentary
Add Quantitative Easing to this.
Jim Sinclair’s Commentary
JP Morgan joins Citigroup in taking a Bull position on gold.
Jim Sinclair’s Commentary
Add Quantitative Easing to this.
Jim Sinclair’s Commentary
JP Morgan joins Citigroup in taking a Bull position on gold.
It is not a coincidence that the appreciation in the dollar and fall in the euro both began to lose their respective momentum when it became clear that Quantitative Easing was now the primary strategy of the Federal Reserve. This method does not replace other methods, but is instead an addition to the multiple other approaches already in place.
In the same timeframe it appears the last of the weak longs exited the energy group.
I believe that the advent of Quantitative Easing is the beginning of Gold’s move to $1200 and $1650.
I believe the dollar rally is done at Harry Schultz’s PO of .88-.89 on the USDX.
The low in the euro has occurred.
All of this is a product of Quantitative Easing without sterilization.
When Bernanke referred to the Helicopter Drop of electronically created money without limits, he was referring to the following now famous speech:
Deflation: Making Sure "It" Doesn’t Happen Here
Remarks by Governor Ben S. Bernanke
Before the National Economists Club, Washington, D.C.
November 21, 2002
Since World War II, inflation–the apparently inexorable rise in the prices of goods and services–has been the bane of central bankers. Economists of various stripes have argued that inflation is the inevitable result of (pick your favorite) the abandonment of metallic monetary standards, a lack of fiscal discipline, shocks to the price of oil and other commodities, struggles over the distribution of income, excessive money creation, self-confirming inflation expectations, an "inflation bias" in the policies of central banks, and still others. Despite widespread "inflation pessimism," however, during the 1980s and 1990s most industrial-country central banks were able to cage, if not entirely tame, the inflation dragon. Although a number of factors converged to make this happy outcome possible, an essential element was the heightened understanding by central bankers and, equally as important, by political leaders and the public at large of the very high costs of allowing the economy to stray too far from price stability.
With inflation rates now quite low in the United States, however, some have expressed concern that we may soon face a new problem–the danger of deflation, or falling prices. That this concern is not purely hypothetical is brought home to us whenever we read newspaper reports about Japan, where what seems to be a relatively moderate deflation–a decline in consumer prices of about 1 percent per year–has been associated with years of painfully slow growth, rising joblessness, and apparently intractable financial problems in the banking and corporate sectors. While it is difficult to sort out cause from effect, the consensus view is that deflation has been an important negative factor in the Japanese slump.
So, is deflation a threat to the economic health of the United States? Not to leave you in suspense, I believe that the chance of significant deflation in the United States in the foreseeable future is extremely small, for two principal reasons. The first is the resilience and structural stability of the U.S. economy itself. Over the years, the U.S. economy has shown a remarkable ability to absorb shocks of all kinds, to recover, and to continue to grow. Flexible and efficient markets for labor and capital, an entrepreneurial tradition, and a general willingness to tolerate and even embrace technological and economic change all contribute to this resiliency. A particularly important protective factor in the current environment is the strength of our financial system: Despite the adverse shocks of the past year, our banking system remains healthy and well-regulated, and firm and household balance sheets are for the most part in good shape. Also helpful is that inflation has recently been not only low but quite stable, with one result being that inflation expectations seem well anchored. For example, according to the University of Michigan survey that underlies the index of consumer sentiment, the median expected rate of inflation during the next five to ten years among those interviewed was 2.9 percent in October 2002, as compared with 2.7 percent a year earlier and 3.0 percent two years earlier–a stable record indeed.
The following articles should also be reviewed.
M3, where art thou?
With quantitative easing under way, money supply is going to become an increasingly important gauge.
Morgan Stanley notes the measure will be a key indicator of when ‘QE’ actually starts to kick in. Before adopting QE, all excess reserves created by the Fed were being hoarded by banks. Rather than increasing, the so-called money multiplier (the link between the Fed’s balance sheet and the money supply) had actually plummeted. The only other time this has happened is during the Great Depression, say Morgan Stanley. But there is reason to be optimistic. They write:
“…there now appear to be some tentative signs of a turnaround. In the latest weekly data reported by the Fed, M1 jumped a whopping US$44 billion. And this follows on the heels of a US$33 billion jump in the prior week. To be sure, the monetary aggregates can be quite volatile, and special factors such as the recent hike in the deposit insurance cap can lead to short-term distortions, but going forward we will be watching the growth in the money supply in order to gauge the effectiveness of QE.”
The pictorial Quantitative Easing
In words: The Fed’s liquidity programmes, such as the TAF, have combined to inject about $1,100bn into the financial system (Figure 10) — and simultaneously jacked up the Fed’s assets. Normally the Fed offsets an increase in its assets by selling new treasuries, which decreases the amount of currency in circulation and conversely increases its liabilities. This is called sterilisation and is one way the Fed can increase assets without expanding the money supply.
The Fed’s primary method of draining the excess liquidity (The SFP programme) has only gotten rid of about $500bn of that $800bn increase. The Fed is not fully sterilising its massive increase in assets — in effect it is increasing the money supply.
This is not necessarily a bad thing. For a start, inflation helps you pay off debts — which are fixed, and of which there are a lot in the US — by essentially devaluing your debt (and conversely, in a perverse sort of way, making the savings of those who had the foresight tendency to err on the side of prudence, worth less).
The inflationary effect is, however, mitigated by one thing — the breakdown of the money multiplier as bank lending has seized up. Thus, money supply has increased, in this case measured by M1, but it’s increased less than the rise in the base money supply would suggest.
A final word on the matter, from BoA’s Jeffrey Rosenberg, regarding yesterday’s announcement that the Fed would start buying mortgage-backed stuff (MBS) from the GSEs Fannie and Freddie (emphasis our own):
Today’s Fed announcement on GSE purchases launches explicit QE that kills two birds with one stone. QE offsets the current deflationary impact of financial system distress and directing these purchases towards GSE debt and MBS may help reduce mortgage rates, a key goal to stabilizing the housing market. While QE may offset current deflationary risks, longer term these measures must be temporary to avoid creating their own problems of inflation and dollar devaluation, a risk highlighted by today’s USD decline and increase in gold…
$8.5 trillion is unthinkable in terms of paying back the depreciated value of financial and non financial business entity portfolios. Assume someone came to your door and asked you how your investments were going. When you explain to that person that a bad man in Toronto organized a group of really nasty people named hedge funds to naked short your shares and as a result you have lost 90% of your retirement fund, that person hands you a check to cover your loss.
Would you then characterize the money from that check as neutralized funds only filling a black hole in your balance sheet having no real economic impact on you?
That opinion, held by many, is so academic. The idea that $8.5 means nothing because it fills some black hole of losses is "form" over "substance" and simply too academic to believe. This is $8.5 trillion!
Now with that thought in mind contemplate $8.5 trillion dollars (for starters) before President Elect Obama’s fiscal stimulation for the creation of 2.5 million jobs, then a condition called, "Out of Control."
"Mechanically, reverting back to a global gold standard would be straightforward. First, an intrinsic global value of gold would have to be defined in order to convert various paper currencies. If the original Bretton Woods agreement were to be used as a model, we first divide the respective sizes of each central bank balance sheet by its corresponding official gold holdings. For example;
The Fed reports official US gold holdings to be roughly 8,100 metric tons, or about 286 million ounces.
The US Federal Reserve’s balance sheet liabilities (private banking system reserves) are approximately $2 trillion.
Therefore, the US dollar would have to be pegged to gold at somewhere around $7,000/ounce.
Aggregating the gold holdings of the ECB and the legacy central banks that comprise the Eurozone would imply a $6,300 gold price. Again using the Bretton Woods system as a model, the US dollar and Euro might be designated as “global reserve currencies” because they could most easily be converted to gold. The remainder of participating global currencies could then be made exchangeable into US Dollars/Euros at fixed, but amendable rates (floating foreign exchange rates)."
Mark Faber has the re-entrance of gold into the system down, but I feel he is not wholly clear on how Volcker will recommend the FRGCR as a major dollar crisis below .72 and near .62 on the USDX.
Some readers might consider sending Mark Faber all my articles on the "Modernized and Revitalized Federal Reserve Gold Certificate Ratio (FRGCR)." tied to a measure of international dollar liquidity and the price of gold which floats. A balance sheet problem can only be fixed by a balance sheet fix. Gold floats and fits comfortably into today’s system.
I will not argue with Mr. Farber’s price objectives.
All the best,
Linked below are a few charts for you to examine.
Also, I am monitoring the delivery process for the December Comex gold contract. Here is what we have for first notice day:
We had a total of 8,600 issued and stopped – to put it into perspective, the entire month of October was 11,554 deliveries. November, an off month, had 1,288 if my data is correct. What is curious is that Bank of Nova Scotia was the big stopper in the month of November but the first notice day for the December shows them as issuing 2,327 but stopping 3,523. It is hard to figure out what they or their customers are doing there but on balance they are still taking more than they are issuing. They are still the LARGEST STOPPER.
Credit Suisse is the largest issuer.
Have a great weekend!
Pakistan is the world’s most serious problem. As 2011 approaches so does the fragile nature of the international geopolitics focus on oil.
RED ALERT – Possible Geopolitical Consequences of the Mumbai Attacks
If the Nov. 26 attacks in Mumbai were carried out by Islamist militants as it appears, the Indian government will have little choice, politically speaking, but to blame them on Pakistan. That will in turn spark a crisis between the two nuclear rivals that will draw the United States into the fray.
At this point the situation on the ground in Mumbai remains unclear following the militant attacks of Nov. 26. But in order to understand the geopolitical significance of what is going on, it is necessary to begin looking beyond this event at what will follow. Though the situation is still in motion, the likely consequences of the attack are less murky.
We will begin by assuming that the attackers are Islamist militant groups operating in India, possibly with some level of outside support from Pakistan. We can also see quite clearly that this was a carefully planned, well-executed attack.
Given this, the Indian government has two choices. First, it can simply say that the perpetrators are a domestic group. In that case, it will be held accountable for a failure of enormous proportions in security and law enforcement. It will be charged with being unable to protect the public. On the other hand, it can link the attack to an outside power: Pakistan. In that case it can hold a nation-state responsible for the attack, and can use the crisis atmosphere to strengthen the government’s internal position by invoking nationalism. Politically this is a much preferable outcome for the Indian government, and so it is the most likely course of action. This is not to say that there are no outside powers involved — simply that, regardless of the ground truth, the Indian government will claim there were.
That, in turn, will plunge India and Pakistan into the worst crisis they have had since 2002. If the Pakistanis are understood to be responsible for the attack, then the Indians must hold them responsible, and that means they will have to take action in retaliation — otherwise, the Indian government’s domestic credibility will plunge. The shape of the crisis, then, will consist of demands that the Pakistanis take immediate steps to suppress Islamist radicals across the board, but particularly in Kashmir. New Delhi will demand that this action be immediate and public. This demand will come parallel to U.S. demands for the same actions, and threats by incoming U.S. President Barack Obama to force greater cooperation from Pakistan.
If that happens, Pakistan will find itself in a nutcracker. On the one side, the Indians will be threatening action — deliberately vague but menacing — along with the Americans. This will be even more intense if it turns out, as currently seems likely, that Americans and Europeans were being held hostage (or worse) in the two hotels that were attacked. If the attacks are traced to Pakistan, American demands will escalate well in advance of inauguration day.
There is a precedent for this. In 2002 there was an attack on the Indian parliament in Mumbai by Islamist militants linked to Pakistan. A near-nuclear confrontation took place between India and Pakistan, in which the United States brokered a stand-down in return for intensified Pakistani pressure on the Islamists. The crisis helped redefine the Pakistani position on Islamist radicals in Pakistan.
In the current iteration, the demands will be even more intense. The Indians and Americans will have a joint interest in forcing the Pakistani government to act decisively and immediately. The Pakistani government has warned that such pressure could destabilize Pakistan. The Indians will not be in a position to moderate their position, and the Americans will see the situation as an opportunity to extract major concessions. Thus the crisis will directly intersect U.S. and NATO operations in Afghanistan.
It is not clear the degree to which the Pakistani government can control the situation. But the Indians will have no choice but to be assertive, and the United States will move along the same line. Whether it is the current government in India that reacts, or one that succeeds doesn’t matter. Either way, India is under enormous pressure to respond. Therefore the events point to a serious crisis not simply between Pakistan and India, but within Pakistan as well, with the government caught between foreign powers and domestic realities. Given the circumstances, massive destabilization is possible — never a good thing with a nuclear power.
This is thinking far ahead of the curve, and is based on an assumption of the truth of something we don’t know for certain yet, which is that the attackers were Muslims and that the Pakistanis will not be able to demonstrate categorically that they weren’t involved. Since we suspect they were Muslims, and since we doubt the Pakistanis can be categorical and convincing enough to thwart Indian demands, we suspect that we will be deep into a crisis within the next few days, very shortly after the situation on the ground clarifies itself.
Who’s Behind the Mumbai Massacre?
By SIMON ROBINSON Friday, Nov. 28, 2008
Even as the siege of Mumbai was still going on, the finger-pointing began. India’s Prime Minister Manmohan Singh said "external forces" were behind the attacks, a thinly veiled reference to India’s neighbor and longtime foe Pakistan. Foreign Minister Pranab Mukherjee went further, telling reporters that "elements with links to Pakistan" were involved. But Pakistan’s President and Prime Minister both condemned the attacks and rejected any talk of Pakistani involvement. Pakistani officials also announced that the head of the powerful Inter-Services Intelligence organization (ISI) often accused of orchestrating terrorist assaults on India would travel to India to offer assistance in investigating the Mumbai massacre.
India blames "elements" in Pakistan for attacks
By MUNEEZA NAQVI 4 hours ago
NEW DELHI (AP) India pointed the finger of blame at Pakistan on Friday, saying preliminary investigations into the bloody attacks on its commercial capital showed that "some elements" inside the rival nation were responsible.
The coordinated series of attacks, which began Wednesday night, targeted 10 sites across Mumbai, including an iconic hotel and a landmark train station. More than 150 people were killed in the rampage, including at least 16 foreigners four of them Americans.
Local media speculation quickly settled on Lashkar-e-Tayyeba, a Pakistan rebel group that has fought troops in Indian-controlled Kashmir, but newspapers and TV channels have offered little evidence for the suspicion.
Indian federal home minister Jaiprakash Jaiswal said a captured gunmen had been identified as a Pakistani while R. R. Patil, a top official in Maharashtra state, said, "It is very clear that the terrorists are from Pakistan. We have enough evidence that they are from Pakistan."
Earlier, Prime Minister Manmohan Singh blamed "external forces" for the violence a phrase sometimes used to refer to Pakistani militants, whom Indian authorities often blame for attacks.
Jim Sinclair’s Commentary
NEVER say never.
Al Qaeda’s Goal: Cripple Amtrak’s N’east Corridor
Heightened Security In Place At Penn Station; Attack Could Paralyze Transit Between Boston, Washington…Cops, Feds Armed With M16s On Patrol For Forseeable Future
NEW YORK (CBS) The world’s economic fears were violently pushed aside on Wednesd ay by another global threat — terrorism.
A massive coordinated attack was launched in Mumbai, India just hours after the FBI warned that Al Qaeda may be targeting New York’s subways and railroads.
If Al Qaeda terrorists have their way there will be chaos and mayhem here this holiday season, a mass transit bomb plot that would probably affect all the subway and train lines at Penn and Grand Central stations.
"The threat is serious, the threat is significant, and it is plausible," said Congressman Peter King, R-Long Island, a member of the House Homeland Security Committee.
Uniformed officers, including this NYPD Counter Terrorism Squad members and Amtrak cops with M-16s, flooded Penn Station Wednesday after the FBI said it had received a "plausible but unsubstantiated" report that Al Qaeda operatives discussed a plan two months ago to bomb New York City’s mass transit system.
Jim Sinclair’s Commentary
The naked and pool short sellers who have decimated people seeking safety by illegal means should focus on a harsh but accurate insight of an early economic theorist known as "The Prince"
"Kill a man’s father, and he will hate you. Take away a man’s property, and he will kill you."
The power-tripping Toronto cliques should consider that what they have done has in truth taken more property from people than most wars in history and all crimes since the Jurassic Age.
So far they have practiced their demonic craft with impunity, but things are turning. Everything has it’s season, and I assure you that theirs is over here and now.
Jim Sinclair’s Commentary
We have gone through plans A to J and are now on K.
It is starting to look like children in a panic.
Which PR hack makes up all these names?
Treasury Adds Two Programs to Financial Rescue Plans
Wednesday, November 26, 2008
It’s been 60 days since Congress gave the Treasury Department authority to launch a massive rescue of the financial markets — and in those 60 days, the plan has changed three times.
When the $700 billion Troubled Asset Relief Program, or TARP, was first authorized, the idea was to use the lion’s share of the funds to buy toxic assets on financial companies’ balance sheets. That quickly morphed into the Treasury instead opting to buy equity stakes in financial companies and backing off buying the bad assets. Now the Treasury has done an about face and over the past weekend announced it will indeed by toxic assets at least from Citigroup.
But wait — there’s more.
On Tuesday, the Treasury Department posted on its Web site details of another new program to save the financial institutions called the Systemically Significant Failing Institutions Program and a third unnamed program to provide the financial institutions with government cash.
A Treasury spokesperson told Fox Business Network’s Peter Barnes the $20 billion in capital infusion to Citigroup on top of the $25 billion it got when the government bought stakes in the banks, did not come from the Systemically Significant Failing Institutions Program, but the third, unnamed program. The spokesperson said details of the new unnamed program will be forthcoming.
“It’s a separate program — neither the capital purchase program or the program AIG was under,” said Treasury spokesperson Brookly McLaughlin in an email to Fox Business Network. American International Group’s (AIG) $40 billion investment by the Treasury Department fell under the Systemically Significant Failing Institutions Program. When asked for detail on the third program, McLaughin said: “the law required reporting on all that after the transaction closes.” Based on the timing for when the Treasury posted details on the program used to help AIG, details on the third program could come in about two weeks.
Soon the power tripping Toronto short of gold shares clique may get a surprise. This is also a good basis for taking delivery of the paper gold COMEX contract, therein putting an end to their bearish manipulation every day.
‘Structural deficit’ in gold supply could send prices higher
Wellington West Capital Markets analysts suggest that investors “revisit investing in the junior and intermediate gold producers.”
Author: Dorothy Kosich
Posted: Thursday , 27 Nov 2008
Based on the assumption that current strong physical gold demand highlights an existing supply deficit, Toronto’s Wellington West Capital Markets forecasts that, "if the increased structural deficit in gold supply continues, gold prices should adjust higher."
Wellington metals analysts also advised, "Given the potential change in market fundamentals, we believe it is time investors revisit investing in the junior and intermediate gold producers."
The analysts said their data indicates that a Central Bank Gold Agreement (CBGA) signatory "has become a gold buyer, putting further pressure on the existing supply deficit in the bullion market." In their analysis, Wellington suggests that China is building a strategic gold reserve.
Meanwhile, possible Russian, Ecuadorian and Iranian gold liquidation in the face of internal credit woes "has not fazed the market," the analysts advised.
Analysts Catherine Gignac, Paolo Lostritto, John Miniotis, and Ryan Walker also noted that investment demand for physical gold increased by 179% in the third quarter of this year.
"Severe stock shortages of bars and coins were reported among bullion dealers in many parts of the world. A continuation of strong gold investment demand has been seen so far in Q4/08, leading to the Perth Mint being forced to suspend orders until January," they said.
Jim Sinclair’s Commentary
USSR payback time? A little extreme, but we are on the fast path to dollar perdition. That is a fact!
Russian Professor Says U.S. Will Break Up After Economic Crisis
By Robin Stringer
Nov. 24 (Bloomberg) — A professor at the diplomatic academy of Russia’s Ministry of Foreign Affairs said the U.S. will break into six parts because of the nation’s financial crisis.
“The dollar isn’t secured by anything,” Igor Panarin said in an interview transcribed by Russian newspaper Izvestia today. “The country’s foreign debt has grown like an avalanche; this is a pyramid, which has to collapse.”
Panarin said in the interview that the financial crisis will worsen, unemployment will rise and people will lose their savings — factors that will cause the country’s breakup.
“Dissatisfaction is growing, and it is only being held back at the moment by the elections, and the hope” that President- elect Barack Obama “can work miracles,” he said. “But when spring comes, it will be clear that there are no miracles.”
If this can happen in Bombay (Mumbai) it can happen in NYC, LA, Toronto or anywhere.
This is a city under siege. This is no minor event. It is an unthinkable kind of war and Westerners are the major hostages at the 10 locations this is taking place.
These hotels presently under attack were hosting meetings for major international corporations at the times of the attacks.
The government of India and the government of Pakistan just announced mutual assistance plans to fight terrorism.
This was well planned and well executed. This is not a small thing but rather ratchets up the geopolitical risk the world faces everywhere.
Don’t kid yourself for a second. This is a city as vibrant as NYC but larger. There is no place there presently under attack that I have not stayed or gone to.
When the story is finally told you will see the terrorists in Pakistan have a major hand here. I have warned you that Pakistan is the greatest problem the world has.
Mumbai rocked by deadly attacks
Thursday, 27 November 2008
Gunmen have carried out a series of co-coordinated attacks across the Indian city of Mumbai (Bombay), killing at least 80 people and injuring 200 more.
At least seven high-profile locations were hit in India’s financial capital, including two luxury hotels where hostages were reported to be held.
A fire is sweeping through the Taj Mahal Palace, Mumbai’s most famous hotel, which is now ringed by troops.
Police said four suspected terrorists have been killed and nine arrested.
Flames and black smoke billow from the Taj Mahal Palace hotel, Mumbai
The situation is still confused but the city’s main train station, a hospital, a restaurant and two hotels – locations used by foreigners as well as local businessmen and leaders – are among those places caught up in the violence.
There are reports of gunfire and explosions taking place elsewhere in the city, and reports of a hostage situation at a hospital.
Commandos have now surrounded the two hotels, the Taj Mahal Palace and the Oberoi Trident, where it is believed that the armed men are holding dozens of hostages.
One eyewitness said that the attackers had singled out British and American passport holders.