Posted at 7:55 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

I still think the vast majority are in denial. There really does appear to be an engrained mindset that “it can’t happen here.” That no matter what, “the people in power are really smart and know these things so much better than I do so I am not worried about any sort of crisis developing.” “They can fix it.”

The problem is we have an entire generation that has no clue what “The Great Depression” was like, much less even know about it due to the pitiful amount and quality of the history classes taught today.

Most folks think that the Weimar Republic is a diner that serves hot dogs or weenies.

Heaven help us when they wake up and realize what is happening.

By the way, did you read about some of the small towns out that due to budget constraints told their citizens they will no longer be responding to burglary calls?

This is the sort of thing that concerns me where all this is headed.

Your pal,
Trader Dan

Cutbacks force police to curtail calls for some crimes
By Kevin Johnson, USA TODAY

Budget cuts are forcing police around the country to stop responding to fraud, burglary and theft calls as officers focus limited resources on violent crime.

Cutbacks in such places as Oakland, Tulsa and Norton, Mass. have forced police to tell residents to file their own reports — online or in writing — for break-ins and other lesser crimes.

"If you come home to find your house burglarized and you call, we’re not coming," said Oakland Police spokeswoman Holly Joshi. The city laid off 80 officers from its force of 687 last month and the department can’t respond to burglary, vandalism, and identity theft. "It’s amazing. It’s a big change for us."

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Gold Stocks Trend Energy Increasing
CIGA Eric

REV(E) has breached its June high despite a lower price. This suggests that trend energy is increasing and retest of the June price high.

Gold Miners Index ETF (GDX):
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Dear Eric,

Greenspan when Chairman confirmed MOPE (Management of Perspective Economic) as the present school of economic thought and application. Now Bernanke is making the same confirmation.

There comes a time when smoke and mirrors fall flat on their ass. This is the time as we are headed to a double dip with the double being the dip of a lifetime.

The result will without any doubt be "Currency Induced Cost Push Inflation." The problem is that so very few have a clue what that is, yet the fate of nations hangs on the correct understanding.

Regards,
Jim

Bernanke’s top tool now may be power of persuasion
CIGA Eric

The power of persuasion – spin, MOPE, propaganda, etc has been a critical tool since humans learned to talk within the context of centralized control. The fact that the media has chosen to recognize it at this point in the cycle reflects the growing fragility of the economic backdrop.

That’s the test facing Fed Chairman Ben Bernanke as he addresses a conference Friday in Jackson Hole, Wyo. Without any easy options left, Bernanke must try to prevent another recession by persuading people and businesses to feel confident enough about the future to spend more today.

Source: finance.yahoo.com

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Dear Eric,

Recession risk or the bottom will drop out? You are being too gentlemanly.

Regards,
Jim

U.S. Economy: Durables, Housing Signal Recession Risk
CIGA Eric

Both CPI and gold-adjusted business core spend (new orders of durable goods ex. defense and aircraft) time series are rolling over. Gold adjusted business core spending, a better reflection real of business activity, has not recorded positive year-over-year growth since 2007. This throws cold water on the heavily MOPE’d economic recovery of 2009-2010.

Real Business Core Capital Spending: Real or CPI-Adjusted New Orders of Durable Goods ex. defense and aircraft (RBCCS) and YOY Change:
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Gold-Adjusted New Orders of Durable Goods ex. defense and aircraft (BCCSGLDR) and YOY Change:
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Orders for durable goods in the U.S. increased less than forecast in July and sales of new homes unexpectedly dropped, increasing the risk of a renewed recession in the world’s largest economy.

Bookings for goods made to last at least three years rose 0.3 percent, figures from the Commerce Department showed today in Washington. Excluding transportation equipment, demand fell by the most in more than a year. Purchases of new dwellings fell 12 percent to an annual pace of 276,000, the weakest since data began in 1963, figures from the same agency showed.

Source: businessweek.com

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Posted at 5:15 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

Now tell me this chart does not look like our illustration number one, a ski jump.

How about housing’s first breakdown of strong support?

Failure to return to the support and through it is downright SCARY.

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Jim Sinclair’s Commentary

The reason for this is the quiet disaster. The major losses in retirement program investments is twofold:

1. The legal liability that the managers of pension funds absolutely have as compared to your average whacked hedgie.

2. The fact that for decades pension funds have been Wall Street’s circular file for junk.

Illinois Teachers’ Retirement System selling off $3B to cover benefits
By: Barry B. Burr August 24, 2010

(Crain’s) — Illinois Teachers’ Retirement System, Springfield, plans to sell $3 billion in investments, or about 10% of its $33.1 billion in assets, in the current fiscal year to pay pension benefits, according to Dave Urbanek, public information officer.

The system is the fifth Illinois statewide defined benefit plan to sell off investments this fiscal year to pay benefits.

Illinois State Universities Retirement System, Champaign, expects to sell $1.2 billion in investments from its $12.2 billion defined benefit fund this fiscal year to raise liquidity to pay benefits to participants.

The Illinois State Board of Investment, Chicago, could sell $840 million investments from its $9.9 billion fund to pay benefits of the Illinois State Employees’ Retirement System, Illinois Judges’ Retirement System and Illinois General Assembly Retirement System. ISBI oversees the investments of the three systems.

The liquidity stress from the investment sales at the five plans could force each of them to restructure their strategic asset allocations, terminate investment managers and search for new managers.

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Jim Sinclair’s Commentary

Gold has ethics for one major reason: because there is no liabilities attached to gold as there are to all Fiat currencies in one degree or another.

The Ethics of Gold
Tuesday, 24 August 2010  at  11:14, By Ron Robins, Founder & Analyst – Investing for the Soul

The rising price of gold stands as the ethical barometer of the mismanagement of our fiscal, monetary, and currency systems. Gold is in the early stages of re-asserting its historic role of helping to bring order to monetary and currency chaos. Its price has risen more than fourfold over the past ten years as a result of investors anticipating the predictable financial and currency chaos we have today—and what is likely yet to come.

The central banks and government treasuries, particularly those of the US, Europe, and Japan, have been weakened and our trust in them eroded. For decades they assured us that only they and their paper currencies and fractional reserve banking systems can keep our economies growing forever. They are now failing for all to see. And before the ships of state sink and economies further submerge they bail out their banking friends.

The monetary and currency systems and organisations responsible for them are deteriorating because they essentially lack an ethical standard. That is not to say that most individuals in these organisations are unethical. It is that as organizations they implemented policies over the past several decades that knowingly—or they should have known—would eventually lead to great financial and economic hardship.

One such policy was the encouragement of debt creation way beyond income or economic growth. When this policy failed, it led to tens of millions of people losing their jobs globally, millions losing their homes, and retirees in developed countries losing their savings as interest rates were reduced to near zero. It is in this sense that these organizations were, and are, without an ethical standard.

To rise to the top among many of these banking and financial organizations, requires not only brilliance, but usually subservience to base instinctual values of status and greed.

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Jim Sinclair’s Commentary

If the S&P wants to instantaneously disintegrate, there is a simple way – downgrade the USA.

I can see the Navy Seals storming their office.

S&P Says US Should Act to Protect AAA-Rating: Report
Published: Thursday, 26 Aug 2010 | 6:27 AM ET

The United States government needs to take steps to preserve its top AAA-rating, a Standard & Poor’s Ratings (S&P) official told Dow Jones newswire in an interview published on Thursday.

Financial Crisis

The measures taken in response to recommendations President Barack Obama’s commission on fiscal responsibility would be crucial in the view S&P takes on the U.S. credit rating, he said.

"It is very important for the credit standing of the United States that the Congress considers very carefully what the fiscal commission proposes," John Chambers, chairman of S&P’s sovereign rating committee, was quoted as saying.

"It is very important for Congress to take the required steps."

S&P maintains the United States’ top AAA rating with a stable outlook, meaning there is not a significant chance of a change in the near future.

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Posted at 2:14 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

It is generally not a good sign when a market moves lower after failing to sustain its gains on the release of “friendly” news. Such has been the case so far today with the S&P 500 as it popped higher when the unemployment numbers came in a bit less than the market had been anticipating. The bump higher attracted sellers instead which is most disconcerting if you happen to be a bull. It is early in the day yet as I write this so the longs can still turn it around but for now you can see the “risk” trades that were put on earlier coming right back off.

The Euro has lost a half a cent against the Dollar as the equity markets have faded off their best levels with the Yen moving a tad higher as once again, both it and the Dollar receive money flows whenever investors become nervous. Speaking of nervous, Forex traders are becoming increasingly worried that the Bank of Japan is getting ready to foray forth and inflict a dose of punishment upon the brazen speculators who have dared to bid the Yen higher. They apparently are getting ticked off that the stronger Yen is crimping their all-important export market as Japanese made products are losing competitiveness. Chatter is that the Japanese monetary lords will engage in a round of intervention and begin selling the yen combined with another dose of QE. We shall see but experience has taught me, all too painfully I might add, that once the Finance Ministry and/or the Bank of Japan begins expressing strong displeasure over the level of their yen, it is not the better part of wisdom to become too cocky or get too aggressive. That perhaps more than anything is keeping the Yen from moving sharply higher for the immediate future although you might see some of the bigger hedgies actually try to push their luck to see exactly what level will bring a potential response. In effect, players have been known to keep prodding until they get the intervention to see where the ceiling is for the short term. They can then buy on dips and sell the ceiling with the knowledge that the lords in Japan are pleased. Problem is that one never knows when the Japanese authorities will decide to play a few mind games and keep selling yen!  Ouch….

I said all that to say that since the Yen has a fairly large weighting in the basket of currencies that make up the USDX, it movements are significant in attempting to ascertain where the Dollar is headed. With the current mindset being one of rushing into the Yen whenever there is an aversion to risk, the effect is to stem somewhat the corresponding rise in the Dollar on such occasions. Were it not for the Yen, the Dollar would respond more strongly to the rush into safe haven play. If the Japanese monetary authorities set a distinct line in the sand for their currency, it could be that any further risk aversion trades would see a much stronger rally in the Dollar.

The effect of the strong yen has been to mute somewhat the performance of gold when priced in Yen terms. Gold continues to remain very strong in terms of the European currencies, and the Canadian Dollar as well but has underperformed when viewed through the prism of the Yen price.

Open interest increased yesterday in both gold and silver but not to the extent I would have expected in silver given the magnitude of its recent rise. That tells me that whomever it is that has emerged in the West to challenge the perma shorts in that pit, they are being successful in squeezing some of their weaker cousins out of the market. I wish that this week’s CFTC today which will be released on Friday would have included yesterday’s positions as well as Tuesday’s to give us a more complete picture of who got forced out. What I am going to be looking at is the positions of the strong-handed shorts in that market. If we are going to see a legitimate commercial signal failure, it will show up here first. My own view at this point is that it is going to take a much stronger push on the part of the longs to get the Morgans of the world to run. The ones that are more than likely running right now are the funds on the short side and some of the CTA’s and other larger reportables. That is just a guess and I could be wrong but until tomorrow, all of us are guessing!

It looks as if some of the longs could not resist the urge to ring the cash register after price stalled out above $19. We will watch to see where chart support develops.

Open interest increases in gold signify that managed money continues to move into the metal. At 565,000 it is well off the record peak above 605,000. With price a mere $20 off its all time nominal high, it would be a relatively easy feat for the big funds to take it through that level. Question is are they ready to do so yet? Pit locals and other assorted option sellers are attempting to ply their craft of screwing the option buyers, which is the norm for the Comex crowd. Nothing like legalized theft. Gotta keep the exchange members employed. Then again, why else does anyone in their right mind pay those kinds of prices for a seat on the exchange? Answer – they get to regularly milk the public with a wink and a nod of the overseers.

Today’s high confirms the selling resistance shown on the daily chart. We watch now to see where buyers emerge.

Gold shares are unusually strong today given the weakness in gold today. It is however having difficulty near the 480 level, which as one can see from an examination of that chart, a region where sellers have surfaced in the past. If the share bulls can force this index up through 480 and hold it there on two consecutive closes, they have a clear shot at 495 – 500.

Bonds continue their relentless march north. There still is no sign of a technical top in that market although it is losing some upside momentum as it nears 137.

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 4:25 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

Governments DO NOT default, they reschedule and declare that a solution. Problem solved.

Of course that is BS, but it takes awhile for the market to figure it out.

Morgan Stanley Says Government Defaults Inevitable
By Matthew Brown – Aug 25, 2010 12:10 PM MT

Investors face defaults on government bonds given the burden of aging populations and the difficulty of increasing tax revenue, according to a Morgan Stanley executive director.

“Governments will impose a loss on some of their stakeholders,” Arnaud Mares in the firm’s London office wrote in a research report today. “The question is not whether they will renege on their promises, but rather upon which of their promises they will renege, and what form this default will take.” The sovereign-debt crisis is global “and it is not over,” he wrote.

Rather than miss principal and interest payments, governments may choose a “soft” default in which they pay back debts with devalued currencies resulting from faster inflation or force creditors to take lower returns, Mares said in an interview.

Borrowing costs for so-called peripheral euro-region nations from Greece to Ireland surged today, resuming their ascent on concern that governments won’t be able to cut their budget deficits. Standard & Poor’s lowered Ireland’s credit rating yesterday on the rising cost of supporting nationalized banks.

Population trends may be a better predictor of the ability to meet obligations rather than debt as a percentage of gross domestic product, which doesn’t reflect governments’ available revenue and is “backward-looking,” Mares wrote.

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Jim Sinclair’s Commentary

Be in the know. Subscribe to this for payment service.

– Housing Market Stress Deepens Irrespective of Wild Reporting 
– Durable Goods Orders Almost Flat Despite Aircraft Boost 
– Census Payrolls Down 116,000 in August

"No. 318: July Home Sales, Durable Goods Orders "
http://www.shadowstats.com/article/598

 

Jim Sinclair’s Commentary

The big players always know the real estate loans were non-recourse loans.

You will see large walk-aways voluntarily entered into as this market is more professional than housing.

A few more of the big boys bite the dust and the wave has crested. Down she comes.

Commercial Property Owners Choose to Default
By KRIS HUDSON And A.D. PRUITT

Like homeowners walking away from mortgaged houses that plummeted in value, some of the largest commercial-property owners are defaulting on debts and surrendering buildings worth less than their loans.

Companies such as Macerich Co., Vornado Realty Trust and Simon Property Group Inc. have recently stopped making mortgage payments to put pressure on lenders to restructure debts. In many cases they have walked away, sending keys to properties whose values had fallen far below the mortgage amounts, a process known as "jingle mail." These companies all have piles of cash to make the payments. They are simply opting to default because they believe it makes good business sense.

"We don’t do this lightly," said Robert Taubman, chief executive of Taubman Centers Inc. The luxury-mall owner, with upscale properties such as the Beverly Center in Los Angeles, decided earlier this year to stop covering interest payments on its $135 million mortgage on the Pier Shops at Caesars in Atlantic City, N.J.

Taubman, which estimates the mall is now worth only $52 million, gave it back to its mortgage holder.

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Posted at 4:22 PM (CST) by & filed under Jim's Mailbox.

Jim,

Dark Pool investing is spreading to Asia – allegedly because of client demand.

The chairman of the Hong Kong stock exchange is critical of the practice because of the lack of transparency. He warned that “Financial markets face a “systemic risk” from alternative trading platforms.”

No one is listening to him.

Best Regards,
CIGA Black Swan

Dear CIGA Black Swan,

If they are a danger to Asia where they are incipient what are they in the West where they are mature?

Regards,
Jim

Deutsche Bank Starts Hong Kong Dark Pool as Demand Increases 
By Jonathan Burgos – Aug 23, 2010 6:00 AM ET 

Deutsche Bank joins U.S. rival Citigroup Inc. in offering services in Asia for clients seeking trading venues that don’t display quotes publicly. 

Deutsche Bank AG started dark pool trading in Hong Kong today, the German lender’s first such platform in Asia, to meet growing demand in the region. 

After Hong Kong, the bank plans to offer off-exchange trading in Australia, Japan and Singapore, said Mark Davis, head of equity and equity-linked execution for the Asia-Pacific region at Deutsche Bank. The timing of the introduction in those markets is still being confirmed, he said. 

Demand for dark pools, which don’t display quotes publicly, has grown more slowly in Asia than in the U.S. and Europe and Ronald Arculli, chairman of Hong Kong’s stock exchange, has criticized the platforms for lack of transparency. New York- based Citigroup Inc. said last week it plans to start dark pool services in Singapore next year after its off-exchange trading in Australia increased to a record in June. 

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Jim Sinclair’s Commentary

Intellectual giants and floor traders rarely go together. Floor traders and callused knuckles is a commonality.

There is one exception, maybe the only, and that is my dear friend and former partner Yra Harris.

Listen carefully, he knows what is coming.

Notes From Underground: CNBC-CME trader sounds off
August 25, 2010 at 9:19 am

 

Dear CIGAs,

When reading Yra’s article, remember that he is not in the Bubble Camp, he is a floor trader who has profited and survived by never standing in front of a locomotive.

The day a bubble is a bubble is the day after it gets pricked. True bubbles are always identified in hindsight.

Regards,
Jim

Treasuries – The New and Improved Toxic Asset?
CIGA Eric

Treasuries are now the New and Improved Toxic Asset. Everyone knows that they are overvalued, everyone knows their yields are absurd—yet everyone tiptoes around that truth as delicately as if it were a bomb. Which is actually what it is.

Bob

Bob,

The only opinion that matters is the market. The secular trends in the bond market suggest two things: (1) While the nominal (U.S. dollar)trend in bonds remains intact, it serves as a poor "canary in the coal" mine because of the devaluation bias (see chart below):

Long-Term U.S. Government Bonds Total Return Index (LTGBTRI):
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(2) When the devaluation bias is removed, the secular trend in the bond market changes from up to down. Clearly, the canary in the coal mine died in 2001 – a long time ago.

Long-Term U.S. Government Bonds Total Return Index (LTGBTRI) to Gold Ratio:
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Do not let consensus opinion – "what should be" cloud your perception of reality. As I have said many times before, follow the money.

The flow of capital has already begun its transition from the public to private sector (see chart below). This transition will be manifested into market trends (capital flows) yet to be recognized by the collective vision of consensus opinion.

Long-Term U.S. Corporate Bonds Total Return Index (LTCBTRI) to Long-Term U.S. Government Bonds Total Return Index (LTGBTRI):
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Regards,
Eric

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Silver Has Jumped The Creek
CIGA Eric

Silver will lead another liquidity blast. This is illustrated by the gold to silver ratio (GSR).

In early August I suggested that,

While the ratio remains above June 2009 swing low, today’s technical suggest that another wave of currency debasement lurks just around the corner.

Today’s price and volume action suggest that silver has "jumped the creek" above near-term resistance. This has increased the pull of the May-June highs.

Silver ETF (SLV):
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‘Quantitative Easing’: What Does It Really Mean for Investors?
CIGA Eric

Don’t make things more complex than they have to be. What does it mean?

Devaluation of paper money, particularly the senior currency in which the majority of debt was issued (U.S. dollar)

  • Reduction in the general standard of living
  • Ongoing default of debt through inflation
  • Rising price of gold and silver relative to fiat.

Gold, London P.M. Fixed
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Silver, London P.M. Fixed
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Investors queasy over whether there’s anything that can be done to boost the flagging US economy could get a trillion-dollar answer this week from the Federal Reserve.

When officials from the central bank emerge from this week’s Jackson Hole, Wyo., retreat, they will likely disclose the latest in the arsenal of so-called "quantitative easing" measures.

Source: cnbc.com

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Posted at 2:18 PM (CST) by & filed under Trader Dan Norcini.

Dear Friends,

Something extraordinary is obviously occurring in silver as it continues to shrug off any selling pressure that has normally been tied to the “risk aversion” trade. This is the second day in a row in which it has moved sharply higher blowing through chart resistance levels with ease and forcing a huge deal of pain for the shorts.

I cannot say with certainty what is occurring but it appears that one or more big players is challenging the perma shorts in this pit and is evidently doing so with great success thus far.

Silver is actually pulling gold higher in spite of the obvious capping that is occurring by the bullion banks above the $1,240 level.

Click chart to enlarge in PDF format

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