Posted at 1:01 PM (CST) by & filed under USAWatchdog.com.

Jim Sinclair’s Commentary

Here are two points to consider when your emotions on gold threaten to overtake you.

Dear CIGAs,

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I was sitting here trying to find a way to wrap up the week and then, like a bolt of lightning, an idea hit me.  Gold expert Jim Sinclair sent me this story: “Federal Budget Deficit Hits $1 Trillion For 1st 9 Months Of FY’10.”  The story said, “The shortfall, reflecting $2.6 trillion in outlays for the first three quarters and $1.6 trillion in receipts, narrowed slightly compared with the same point in fiscal 2009.”  So where did the “shortfall” come from?  Try the more that 8 million who lost their jobs.  The story went on to say, “. . . individual income and payroll tax receipts were down 4% over the nine-month period, suggesting that wages and salaries have not improved to the extent that corporate profits have.” Corporate profits have “improved”because they laid-off all those workers!!  (Click here for the entire Dow Jones Newswires story)

Sinclair says, “Nothing has changed. Nothing has been rescued. The can that is being kicked daily down the path is going to turn around and bite the kickers.   
Gold is the only insurance.”  When things get bad enough, there will be more stimulus cash put into the economy and more bank bailouts.  Sinclair is like legendary football quarterback Joe Montana–never bet against either of them.

The second story that should scare the heck out of you is one where the headline reads,“IMF presses US to cut debt.”  The story goes on to say, “The International Monetary Fund on Thursday urged the United States to rein in its ballooning budget deficit without putting the “modest” economic recovery at risk.  Amid jitters that high levels of unemployment may force a double dip recession, the IMF warned the slow U.S.recovery would continue and that debt problems loomed.”  (Click here for the complete story from Yahoo News.)

Talk about a squeeze.  The U.S. has lost millions of jobs; it has falling tax revenues and a ballooning deficit.  Now is the time the International Monetary Fund picks to tell the U.S. to cut its debt?  Not a chance going into the 2010 mid-term elections!  People like Paul Krugman and Nancy Pelosi are pushing for more spending (money printing).  I am betting they will get their wishes granted.  

These two stories do not bode well for the so-called “recovery,” the value of the U.S. dollar and  keeping interest rates held down to ridiculously low levels.  These two stories scare the heck out of me.  Not just because of what they say, but also because they’re making their way into the mainstream media.  That means, before long, everybody will catch on America is in deep financial trouble.  We do not have a “dip” coming our way but a swan dive off of Niagara Falls into a dry river bed.

More…

Posted at 9:22 PM (CST) by & filed under General Editorial.

Dear Friends,

Gold is headed to $1650 and beyond. All your concerns in retrospect will be seen to have been concerns caused by manufactured noise.

Time and time again you have seen this. Time and time again gold will not be stopped.

Nothing has changed. Nothing has been rescued. The can that is being kicked daily down the path is going to turn around and bite the kickers.

Gold is the only insurance.

Regards,
Jim

Federal Budget Deficit Hits $1 Trillion For 1st 9 Months Of FY’10

WASHINGTON -(Dow Jones)- The federal budget deficit for the first nine months of the 2010 fiscal year was just over $1 trillion, the Congressional Budget Office reported Wednesday.

The shortfall, reflecting $2.6 trillion in outlays for the first three quarters and $1.6 trillion in receipts, narrowed slightly compared with the same point in fiscal 2009.

Receipts were 0.5% higher for the period compared to the first three quarters of 2009, CBO said in its monthly budget review.

The rise in revenues was a result of increased corporate tax collections, due to improving economic conditions, and a shift by the Federal Reserve to higher- yielding investments.

But individual income and payroll tax receipts were down 4% over the nine- month period, suggesting that wages and salaries have not improved to the extent that corporate profits have.

More…

Posted at 8:56 PM (CST) by & filed under USAWatchdog.com.

Jim Sinclair’s Commentary

Gold is headed to and through $1650. Greg Hunter points out a major and present reason why.

 

Dear CIGAs,

I have been telling you for months there is going to be a double dip in the economy.  Nobel Prize Winning economist Paul Krugman also thinks the economy is so bad we need to keep on stimulating the economy.  In a New York Times Op-Ed piece last week, Krugman said, “. . . somehow it has become conventional wisdom that now is the time to slash spending, despite the fact that the world’s major economies remain deeply depressed.”  In short, cut backs, or austerity, is not what the economy needs right now. (Click here for the complete NYT Op-Ed from Krugman.)

In a nutshell, Mr. Krugman thinks America will do no harm in the short term if the U.S. government prints money to prop up the economy until it can stand on its own.  He thinks it is a myth to believe in “invisible bond vigilantes” who financially attack countries with sky high debt.  Krugman wrote, “Bond vigilantes are investors who pull the plug on governments they perceive as unable or unwilling to pay their debts. Now there’s no question that countries can suffer crises of confidence (see Greece, debt of). But what the advocates of austerity claim is that (a) the bond vigilantes are about to attack America, and (b) spending anything more on stimulus will set them off.   What reason do we have to believe that any of this is true? Yes, America has long-run budget problems, but what we do on stimulus over the next couple of years has almost no bearing on our ability to deal with these long-run problems.”   

What evidence does Krugman give that America can keep printing money until things get better?  Interest rates on government debt are staying low.  For example, the 10 year Treasury is paying around 3%.  Krugman said, “Far from fleeing U.S. government debt, investors evidently see it as their safest bet in a stumbling economy. Yet the advocates of austerity still assure us that bond vigilantes will attack any day now if we don’t slash spending immediately.”   

What Krugman glosses over is the government has spent trillions keeping rates down and the economy going.  The Fed has bought at least $1.25 trillion in mortgage backed securities with money printed out of thin air.  There has been “quantitative easing” (code for money printing) to the tune of at least $300 billion to buy, what else, government debt.  Congress has raised the debt ceiling to more than $14 trillion.  That helped fund an $862 billion stimulus plan and a $700 billion TARP bailout for the banks. (Part of TARP has been paid back, but taxpayers are still owed around $296 billion.) Now, the Fed is considering ways to head off another plunge in the economy.  A recent Telegraph UK story said, “Fed watchers say Mr. Bernanke and his close allies at the Board in Washingtonare worried by signs that the US recovery is running out of steam. . . .Key members of the five-man Board are quietly mulling a fresh burst of asset purchases, if necessary by pushing the Fed’s balance sheet from $2.4 trillion . . .to uncharted levels of $5 trillion.”  (Click here for the complete Telegraph UK story.)

There is also evidence the government is buying its own debt from hedge fund manager Eric Sprott.  In December of 2009, Sprott took a hard look at who was buying Treasuries.  Sprott discovered a sector the Treasury Department calls “Households” that bought $528 billion in government debt by the third quarter of 2009.  The Sprott report said, “We must admit that we were surprised to discover that “Households” had bought so many Treasuries in 2009. They bought 35 times more government debt than they did in 2008. Given the financial condition of the average household in 2009, this makes little sense to us. With unemployment and foreclosures skyrocketing, who could afford to increase treasury investments to such a large degree? . . . -who is the Household Sector? They are a PHANTOM.  They don’t exist. They merely serve to balance the ledger in the Federal Reserve’s Flow of Funds report.”  (Click here for the Sprott report.)

In June of 2010, according to a CNN story, “Households” held nearly $800 billion in Treasuries.  This “phantom” buying has people like Eric Sprott thinking, “It makes us wonder if it’s all just a Ponzi scheme.”   Are “Households” and the world really flocking to the safety of Treasuries?  Or is the Fed becoming a buyer of last resort?  I think it is probably both.  When the government buys its own debt, it creates false demand and artificially depresses interest rates.    

The idea that interest rates are being magically held down by extreme demand for our ballooning debt is the real myth.   Krugman fails to recognize any downside of all this money printing.  Maybe he has fallen victim to his own prejudices.  As Krugman says in the beginning of his Op-Ed piece, “Much of what Serious People believe rests on prejudices, not analysis. And these prejudices are subject to fads and fashions.   

Milton Freidman, another Nobel Prize winner in economics, summed up the result of a loose monetary policy in his famous quote, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” If the country takes the path Mr. Krugman is suggesting, we might not have a double dip in the economy, but we will have some very big inflation because you just can’t have it both ways.

Link to full article…

Posted at 8:52 PM (CST) by & filed under In The News.

Thought For The Morning

The US turned 234 years old yesterday, and yet over half of the nation’s money supply was created since Helicopter Ben took over the flight controls four years ago. No wonder gold is in a full-fledged bull market.
— David A. Rosenberg, Chief Economist & Strategist, Gluskin Sheff & Associates Inc.

 

Jim Sinclair’s Commentary

Here is the greatest waste of time. Gold is headed to and through $1650.

IMF calls for deficit cuts in US
By MARTIN CRUTSINGER

WASHINGTON (AP) — The International Monetary Fund is calling for the United States to make a stronger effort to curb its budget deficits.

The IMF said Thursday that in addition to cutting government spending, the Obama administration will have to consider raising taxes to get the U.S. deficit down to a manageable level.

The IMF proposed a range of possible tax increases that would be certain to generate huge political opposition, from reducing the popular tax deduction for home mortgages to instituting a national sales tax.

The IMF report said that the U.S. economic recovery was becoming "increasingly well established" but it warned that the risks remained on the downside.

Among the threats, the IMF said, were the possibility of a double-dip recession in housing, continued deterioration in commercial real estate and the threats posed to the U.S. economy from the European debt crisis.

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Jim Sinclair’s Commentary

Ski jump recovery.

40 percent of Florida homes sales are foreclosures
BY KIMBERLY MILLER

Sales of foreclosed homes in Florida made up nearly 40 percent of all purchases in the first part of this year, a “terrifying” statistic, one analyst said, and one that led to deeply discounted prices on distressed properties.

In Miami-Dade County, foreclosure sales made up nearly half — 47 percent — of all homes sales in the first five months of 2010, according to a new report from Irvine, Calif.-based RealtyTrac, which aims to measure foreclosure sales and their impact on home pricing. In Broward County, 46 percent of all homes sales involved distressed properties.

To compare, less than 1 percent of Florida home sales in 2005 were of foreclosed properties, RealtyTrac found.

The report, released Wednesday, defines foreclosure sales as those of homes that are bank owned or where the owners have defaulted on the mortgage and received at least one foreclosure notice.

“Forty percent is a significant number,” said Michael Sichenzia, president of Dynamic Consulting Enterprises in Deerfield Beach. “When you look at where it should be, it’s a terrifying number in the short term and will reverberate throughout the whole system.”

Sichenzia said distressed property sales should make up about 2 percent of total sales.

By 2007, foreclosure sales grew to 4 percent of the total market in Florida. It rose to 38 percent last year.

More…

Posted at 6:43 PM (CST) by & filed under In The News.

Note To Readers:

An article appeared on Kitco saying that I have predicted $17,000 for gold in 2012.

That writer is clearly smoking something funny.

 

Jim Sinclair’s Commentary

Here is your perfect example of the Ski Jump recovery.

The Self-Inflicted Insanity of American Unemployment

News that the unemployment rate has fallen to a "mere" 9.5% seems to suggest an improvement in our dire economic prospects. The reality, however, is far grimmer, as the latest US Bureau of Labor statistics indicate. On balance, it would seem that the apparent "ignition" to the economy achieved in March and April through expanding employment, income, spending and production has somehow "sputtered" in May and June. This is indeed disturbing, since such sustained "ignition" is now necessary since fiscal policy is about to go into reverse.

There are many costs associated with high unemployment, both economic and social. They include not only daily income losses, which are catastrophic for most Americans, but also increased crime rates, family breakdown, increased incidence of mental and physical health disorders, increased alcohol and substance abuse and a generalized misery (See Bill Mitchell).

Yet despite the obvious pathologies created by long-term unemployment, bad policy continues to drive the Obama administration to perpetuate these trends. Worse, with polls indicating rising discontent with Democrat incumbents in the House and Senate, the President’s political advisors appear to be recommending that the President ignore the advice of his economic team and press forward with deficit reduction ahead of job creation spending.

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Jim Sinclair’s Commentary

Actually, in Mandarin that could be a threat.

China Says It Won’t Use U.S. Debt as Threat
BY AARON BACK

BEIJING—China’s foreign-exchange agency sought to ease concerns about how it uses its huge currency reserves, saying it operates on market principles and would never wield its holdings of U.S. government debt as a threat.

The statement Wednesday by the State Administration of Foreign Exchange was the latest in a series of moves by the agency aimed at addressing concerns about its influence. Presented in question-and-answer form, the statement, posted on the agency’s website, rebutted what it portrayed as misconceptions about its management of China’s $2.4 trillion in foreign-exchange reserves, the world’s largest.

The statement rejected the notion posited by some …

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Posted at 6:40 PM (CST) by & filed under Jim's Mailbox.

Dear CIGAs,

Please read this outstanding article provided by CIGA Richard B. so that you can see behind the opaque curtain of management of news in finance

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Dear Jim,

Since May 22, 2010, the FDIC has announced the closings of 14 more banks, bringing the total so far this year to 86. Collectively, they had assets of $6.86 billion and deposits of $5.92 billion.

The FDIC’s estimate of the cost of closing these 14 banks is $1.16 billion, about 20% of deposits. 11 of the 14 failures were accomplished by way of the FDIC entering into loss-share agreements covering a high percentage of the assets taken over by the successor banks. In connection with these closings, the FDIC entered into new loss-share agreements covering an additional $4.82 billion.

That brings the FDIC’s total losses for 2010 up to $17.62 billion. The total face value of assets now guaranteed under FDIC loss share agreements has grown to $176.74 billion.

Releases Provide Insight Into FASB-Blessed Over-Valuations

The FDIC’s Press Releases issued in connection with bank closings provide a basis for evaluating the extent to which each failed bank’s management may have been exaggerating the value of its assets. These facts are important to discover in light of the Financial Accounting Standards Board (“FASB”) having last year rolled back fair value accounting requirements, giving bank management tremendous leeway to assign unrealisticly high values to the institutions’ least liquid, most difficult to value assets.

In connection with each closure, the FDIC obtains competing bids from parties who are interested in taking over the failed bank’s deposits and assets. The FDIC’s estimated loss is basically the difference between the bank’s deposits and the value of the assets agreed upon between the FDIC and the successful bidder.

Since about the first quarter of 2009, this price discovery mechanism has been muddied by the FDIC’s extensive use of loss-share agreements in resolving bank failures. Loss share agreements increase the value buyers are willing to assign to failed banks’ assets in exchange for the FDIC indemnifying them against future losses resulting from the assets turning out to be worth less than the value agreed to.

Still, each bank closing announcement provides a basis for comparing the stated value of the failed bank’s assets against the market value agreed to in connection with the loss share agreement, and therefore understanding the extent to which FASB’s capitulation may be affecting bank values across the board.

Applying this analysis to the largest eight of the 14 banks that failed over the past six weeks leads to the following figures. The highest of the over-valuations was 84%. The lowest was 20% — a still worrisome number.

Over-Valuations Range From 84% to 20%

Washington First International Bank of Seattle, WA, had stated assets of $520.9 million and deposits of $441.4 million. The FDIC estimated it closing cost $158.4 million. Based on that estimate, the bank’s assets were really only worth about $283 million, and had been over-valued by 84%.

Peninsula Bank of Englewood, FL, had stated assets of $644.3 million and deposits of $580.1 million. The FDIC estimated its closing cost $198.4 million. Based on that estimate, the bank’s assets were really only worth about $385.3 million, and had been over-valued by 67%.

First National Bank of Savannah, GA, had stated assets of $252.5 million and deposits of $231.9million. The FDIC estimated it closing cost $68.9million. Based on that estimate, the bank’s assets were really only worth about $163 million, and had been over-valued by 55%.

TierOne Bank of Lincoln, NB, had stated assets of $2.8 billion and deposits of $2.2 billion. The FDIC estimated it closing cost $297.8 million. Based on that estimate, the bank’s assets were really only worth about $1.9 billion, and had been over-valued by 47%.

Sun West Bank of Las Vegas, NV, had stated assets of $360.7 million and deposits of $353.9 million. The FDIC estimated it closing cost $96.7 million. Based on that estimate, the bank’s assets were really only worth about $257 million, and had been over-valued by 40%.

Bank of Florida – Southwest, of Naples, FL, had stated assets of $640.9 million and deposits of $559.5 million. The FDIC estimated it closing cost $91.3 million. Based on that estimate, the bank’s assets were really only worth about $468.2 million, and had been over-valued by 37%.

Bank of Florida – Southeast, of Fort Lauderdale, FL, had stated assets of $595.3 million and deposits of $531.7 million. The FDIC estimated it closing cost $71.4 million. Based on that estimate, the bank’s assets were really only worth about $460.3 million, and had been over-valued by 30%.

Nevada Security Bank of Reno, NV, had stated assets of $480.3 million and deposits of $479.8 million. The FDIC estimated it closing cost $80.9 million. Based on that estimate, the bank’s assets were really only worth about $399 million, and had been over-valued by 20%.

Slow Pace of Closings Not Encouraging Given Backlog

Over the past six weeks the pace of announced bank closings has been quite slow compared to the rest of the year. This might be an encouraging sign were it not for the known backlog of seriously under-capitalized banks, known to number more than 425. Given this backlog, a slowing pace of closures implies little more than Manipulation of Perspective Economics (“MOPE”) and Pretend and Extend being put into overdrive.

In the updated study of key FDIC enforcement actions last month, I pointed out there were at least 425 banks currently operating under serious FDIC enforcement orders that only issue when banks are found to be seriously under-capitalized. Since then, the FDIC announced its May enforcement actions. A total of 26 new banks became subject to a serious enforcement order for the first time, while only 5 had their orders lifted.

Meanwhile, over the past six weeks 39 new banks became subject to serious Federal Reserve System Enforcement Actions – 35 Written Agreements (“WAs”) and 4 Prompt Corrective Action Directives (“PCADs”). WAs have to be read on a case-by-case basis, but at the very least, their issuance indicates the bank fared very poorly in its last inspection. PCADs indicate a bank is seriously under-capitalized and at imminent risk of failure.

With this serious a backlog overhanging regulators, it does not inspire confidence to see them resolving so few troubled institutions over time. MOPE-inspired pronouncements of a recovering economy are looking thinner by the minute. An honest look at the facts makes a ski jump-shaped renewal of the economic downturn look very likely.

The pace of new bank closing announcements can be expected to pick up dramatically in the near future. There is no basis to believe the number of troubled institutions is decreasing or the serious problems threatening the banking sector are improving.

Respectfully yours,
CIGA Richard B.

 

Unemployment Is No Longer A Lagging Indicator: El-Erian
CIGA Eric

It is the shift from expansion to contraction of credit that has appeared to change economic indicators from lagging to leading. The leading indicator is not employment but rather access to easy credit. When access to easy credit is removed, a nation’s standard of living will revert towards its productive and intellectual capacity. Employment is but one component of this combined capacity. The price of gold is rising, because confidence in the U.S.’s ability to maintain its current standard of living without debasing its currency is declining. Employment will rebound when investment increases demand for the U.S.’s productive and intellectual capacity. This is why stimuli orientated toward increasing consumption rather than investment, like the programs in the Great Depression, are doomed for failure.

Unemployment has shifted from a lagging indicator to a leading one and is warning government policymakers to confront problems in an economy mired in slow growth, Pimco co-CEO Mohamed El-Erian told CNBC.

The consideration of unemployment as a lagging indicator is a favorite mantra among economists who believe the rate primarily looks at the past rather than what is to come.

Source: finance.yahoo.com

More…

 

Gold slips as dollar firms, and after China report
CIGA Eric

Who’s more foolish, the fool or the fool who follows him?, Obi-Wan Kenobi Star Wars: Episode IV – A New Hope

Strange how these reports, the dollar and by extension US debt is good and gold is bad, tend to coincide with paper attacks against gold. Several months ago, Chinese officials stated interest in diversification away from the dollar and chastised the U.S.’s chronic spending, debt, and devaluation habits.

The precious metal slipped to a session low of $1,186.95, its weakest since late May, in earlier trade after China’s State Administration of Foreign Exchange said gold will not become a major component of the central bank’s portfolio.

Source: reuters.com

More…

Dear Eric,

Nobody but the Chinese understands the minds of the Chinese. They are aggressive risk takers and successful.

Like the masters of markets they are, the use of the media has not passed their attention. I wager they are buyers right now.

Regards,
Jim