Posted at 2:50 PM (CST) by & filed under Jim's Mailbox.

Jim,

"The bottom line of the comparison is that the trend is now forcing the US Treasury in on the internal US credit markets to finance the present needs for the 12.7 trillion bailouts as well as the shortfall on the US budget deficit." As you have said Jim, this is the one and major criteria of this entire disaster that cannot be bailed out.”

It is important to put into historical context the rate of deterioration in the following trends:

TIC relative Trade & Budget Deficits:
http://www.facebook.com/photo.php?pid=1492806&l=45c3fa682c&id=557304509

TIC relative Trade Deficit:
http://www.facebook.com/photo.php?pid=1492805&l=f7afaa915e&id=557304509

TIC relative Budget Deficit:
http://www.facebook.com/photo.php?pid=1492804&l=e8e64b417e&id=557304509

Regards,
CIGA Eric

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Dear Jim,

I think the Irish police are onto something! Good on them. This is how our police have to start to handle things.

Best,
CIGA BT

Dear BT,

The higher probability is that this will set the groundwork for demotion, defrocking and pension cancellations along with reputational smear of a noted police officer. Nice idea, but impractical when he is calling for the breaking of a limb of the tree that runs the world.

Jim

Gardai want bankers prosecuted
Finance elite must be held accountable for ‘fraud and greed’
By Tom Brady Security Editor
Tuesday April 07 2009

THE man who leads middle-ranking gardai last night called for prosecutions against the banking elite.

The Association of Garda Sergeants and Inspectors (AGSI) believes some banking behaviour in the past few years amounted to fraud, and brought the country "almost to its knees".

And if there legal loopholes in the current legislation, the law should be overhauled, they say.

The charge was led last night by AGSI president Paschal Feeney, who said there was an apparent weakness in dealing with white collar crime.

He told his association’s annual conference in Athlone that he wanted the Government to take all possible steps to hold those responsible for the demolition of the country’s financial reputation to account.

More…

Posted at 7:30 PM (CST) by & filed under In The News.

Dear CIGAs,

To properly understand what this means, there are various items for you to consider:

The prime implications of the Trade Balance deals with a comparison to the Treasury International Capital Flows as both are measures of capital inflow or outflow. That balance deals with the willingness of non US entities to finance the demands of the USA. The Trade Balance deals with the mechanics of international trade as a positive inflow of capital in terms of export earnings or out flow as a product of import dependency.

The Trade Balance is heavily dependent on the level of economic activity of the country it represents.

Therefore presentation of the Trade Balance without comparison to the Treasury International Capital Flows renders the statistic immaterial. Both are immaterial when expressed independently of each other.

The bottom line of the comparison is that the trend is now forcing the US Treasury in on the internal US credit markets to finance the present needs for the 12.7 trillion bailouts as well as the shortfall on the US budget deficit.

The above is a lesson in "how to" that you might consider noting for future reference or bookmarking on the compendium.

U.S. Trade Deficit Plunges to Nine-Year Low as Imports Slump
By Timothy R. Homan

April 9 (Bloomberg) — The U.S. trade deficit tumbled in February to the lowest level in nine years as collapsing demand from consumers and companies reverberated around the globe.

The gap shrank to $26 billion, less than anticipated, from a revised $36.2 billion in January, the Commerce Department said today in Washington. Imports plunged for a seventh consecutive month, leading to declines in the deficits with Japan and China, while exports climbed from a two-year low.

The report showed some U.S. trading partners may not bypass the recession unscathed as American demand for Asian cars, toys and electronics plunged. The improvement in exports, the first since July, is likely to be short-lived as economies shrink worldwide.

“It’s an indication of the extent to which we’ve been passing on some of our demand decline to the rest of the world,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “That is why we’ve seen such disastrous declines in growth numbers in Asia. They have been relying on U.S. spending, and U.S. spending just isn’t there any more.”

Separate figures from the Labor Department today showed the cost of goods imported into the U.S. in March rose less than forecast as companies in China and Japan cut prices to stem the slump in overseas sales. Other figures from Labor showed the number of Americans filing first-time claims for unemployment insurance exceeded 600,000 for a 10th consecutive week.

More…

 

Jim Sinclair’s Commentary

From Stratfor. Pakistan is a bloody mess. It is the most critical and dangerous area in the world right now.

Pakistan: Islamabad Denies ISI Chief Snub
April 7, 2009 | 2154 GMT

U.S. special envoy for Afghanistan and Pakistan Richard Holbrooke (L) and Pakistani Foreign Minister Shah Mehmood Qureshi in Islamabad on April 7 Pakistani military spokesman Maj. Gen. Athar Abbas on April 7 denied reports that Lt. Gen. Ahmed Shuja Pasha, head of Pakistan’s Inter-Services Intelligence (ISI) spy agency, declined to meet U.S. special envoy to Afghanistan and Pakistan Richard Holbrooke and Joint Chiefs of Staff Chairman Adm. Mike Mullen, who were visiting Islamabad. Abbas, who is director-general of the Inter-Services Public Relations directorate, said the ISI chief was in fact present in the meetings Mullen and Holbrooke had with Pakistani military chief Gen. Ashfaq Kayani. The denial came about half an hour after Pakistani news channels broadcast reports that the ISI chief had snubbed the two senior U.S. officials.

The two reports may appear contradictory, but STRATFOR has learned that the top U.S. military commander and Washington’s point man on the Afghanistan/Pakistan region had requested a separate meeting with the ISI chief, which was not granted. The ISI likely released this story to the media in such a way that it created the impression (and sensation) that the ISI chief refused to meet with senior U.S. officials. Since the rise of a democratically elected government in Islamabad in March 2008, U.S. officials representing the State Department and the Pentagon frequently travel to Pakistan and meet with a wide range of civilian and military officials, including the ISI chief, as authority is now divided between the government and the security establishment. Thus, Holbrooke and Mullen’s request was not out of the ordinary.

Pakistan, which faces a raging jihadist insurgency, is upset over growing U.S. criticism of its army-intelligence complex and increasing unilateral American airstrikes in the country’s northwest. Islamabad is trying to craft a unified national security and foreign policy that takes into account all the stakeholders (legislature, executive, judiciary and military/intelligence establishment) as a means of enhancing its bargaining power with Washington. As a result, it is trying to limit one-on-one contact between Washington and the various Pakistani institutions, especially the ISI — which in this case meant having a group meeting with both the army and intelligence chiefs instead of separate meetings. That said, Islamabad did want to relay its anger to Washington over U.S. criticism of the ISI. This would explain why Kayani demanded April 7 that negative propaganda against his country’s foreign intelligence service end, and it is a reason for preventing a separate meeting between Pasha and the Mullen-Holbrooke team.

 

Jim Sinclair’s Commentary

This place can blow any day, any time. No one other than our gang has any idea of what this means and the start of the most disruptive market event ever when consider over time.

Pakistan: Possible Militant Strikes on Karachi
April 8, 2009 | 2156 GMT

Militants of Tehreek-e-Taliban Pakistan in the Pakistani tribal district of Mohmand Agency on July 21, 2008 TARIQ MAHMOOD/AFP/Getty Images Militants of Tehrik-i-Taliban Pakistan in Mohmand Agency in July 2008 Summary

Karachi police chief Waseem Ahmed said April 8 that police had arrested 5 militants belonging to Lashkar-e-Jhangvi (LJ) who reportedly were planning attacks on seven government buildings in Karachi, British newspaper the Telegraph reported. The targets included the home of the interior minister, police headquarters, Shiite religious centers and suppliers cooperating with NATO forces. LJ is a jihadist group based in Punjab province allied with Tehrik-i-Taliban Pakistan. Jihadists have struck in Karachi before, but a campaign against Karachi by the Tehrik-i-Taliban Pakistan (TTP) would create a serious confrontation for the city’s ruling party, the Muttahida Qaumi Movement, a group that is itself known to engage in significant violence.

Analysis

On April 8, Karachi police chief Waseem Ahmed said police had arrested five militants who were part of militant group Lashkar-e-Jhangvi (LJ) and were planning to attack government offices (including the police station), intelligence agencies, mosques, suppliers who ship goods to Western forces in Afghanistan and counterterrorism personnel. These arrests are only the latest sign that Karachi’s ruling party, the Muttahida Qaumi Movement (MQM), is nervous about the jihadist threat to its city. LJ is a jihadist group based in Punjab province and allied with Tehrik-i-Taliban Pakistan (TTP), which is led by Baitullah Mehsud.

The TTP has shown an ability to strike beyond its traditional territory in the North-West Frontier Province (NWFP) and Federally Administered Tribal Area (FATA) by expanding to virtually all of Pakistan’s major metropolitan areas with attacks in Islamabad, Lahore, Rawalpindi and Peshawar in recent months. Most recently, a group of 10 militants under Mehsud raided a police training facility just east of Lahore in Manawan in Punjab province. The TTP also has shown an interest in attacking Karachi, such as when Mehsud threatened in August 2008 to launch attack on MQM offices and other targets in Karachi if the party leader, Altaf Hussain, did not forfeit his rule there. Mehsud’s spokesman added that the time “was ripe for the Taliban to gain control of the city.”

More…

Riots in Pakistan After Dissidents Found Dead
Thursday, April 09, 2009

QUETTA, Pakistan —  Rioting has broken out in southwestern Pakistan after police said they found the bodies of three missing political dissidents.

Police say one officer has been shot dead in southwestern Pakistan during the rioting.

Ghulam Ali Lashari, a senior police official, said the officer was fatally wounded when protesters opened fire in Khuzdar, a town in Pakistan’s restive Baluchistan province.

Television footage showed police swinging batons to disperse protesters who set fire to a bus in the city of Quetta, the capital of Baluchistan province.

Police official Khalid Masood says the mutilated bodies of three ethnic Baluch nationalist leaders were found before dawn on Thursday in another part of the province.

More…

Jim Sinclair’s Commentary

You see why slowly but surely some of the maverick strongholds are becoming establishment types.

Moody’s Downgrades Berkshire
By MICHAEL J. de la MERCED
April 9, 2009

In these economic times, even Warren E. Buffett can’t qualify for the best credit rating.

Moody’s Investors Service on Wednesday stripped away the triple-A rating of Berkshire Hathaway, the conglomerate and investment vehicle run by Mr. Buffett, citing the economic pressures on the firm.

The news is yet another sign that, despite all of Mr. Buffett’s investing prowess and business savvy, even the man that investors regard as the Oracle of Omaha cannot avoid the tremors coursing through the markets.

The ratings downgrades affect Berkshire as a whole as well as a wide swath of its insurance subsidiaries, including its flagship National Indemnity, as well as other units like the auto insurer Geico and the municipal bond insurer Berkshire Hathaway Assurance.

“Today’s rating actions reflect the impact on Berkshire’s key businesses of the severe decline in equity markets over the past year as well as the protracted economic recession,” Bruce Ballentine, Moody’s lead analyst for Berkshire, said in a statement.

More…

Posted at 7:30 PM (CST) by & filed under General Editorial.

Extremely Important

Be Prepared

The end is close for the effectiveness of Naked, Pool and No Up-tick Short Selling

There are still extremely large (legal and otherwise) short positions in junior gold & silvers plus junior producers of both remaining uncovered as the ability TO POUND LOWER is coming to an end.

The short of gold on the COMEX, the short of gold in everything gold and silver is incestuous.

We have differences from time to time in market views, but I believe you respect my understanding of the technical characteristics and mind of the opposition in precious metals.

With a maximum of 60 days for comment on the reinstatement of a form, but an effective form, of the Up Tick Rule, cover needs to be accomplished in the next 90 days for the extremely large short position in the modest or low-volume trading silver and gold issues.

The short sellers, having DONE THEIR BEST TO POUND DOWN THE PUBLIC

COMPANIES TO COVER, now have only one option left.

 

DIRTY TRICKS

You will recognize the dirty trick when it occurs.

You witnessed it in Royal Gold (RGLD) when it occurred. You have seen it in multiple silver

issues. The South African shares have not been immune.

No precious metal share is immune for the next 90 days, none, no exceptions

Upward Surge From Uptick Rule’s Return?
By RANDALL W. FORSYTH Barron’s Weekly

Market’s bottoming is a process that can’t be hastened by government interference. WILL THE UPTICK RULE SAVE the stock market again?

Back in 1938, the original establishment of the uptick rule helped to reverse the 49% drop in the stock market over the 1937-38 period, according to Louise Yamada, the highly regarded head of Louise Yamada Technical Research Advisors.

The Securities and Exchange Commission is scheduled to take up a number of proposals Wednesday that would curtail short-selling, including a reinstatement of the uptick rule. (To review, that regulation required that a short sale — the sale of borrowed shares in anticipation of lower prices — could only take place after a trade that took place at a higher price, that is, an uptick. The idea is to prevent piling on by the bears.)

More…

How do you prepare?

1. You must eliminate ALL margin. Margin is the tool of dirty tricks, which still exists under $5 as maintenance margin. It is the killer. If you have any form of margin in anything gold between now and mid-June you have made yourself a sitting duck for the last try to cover, the DIRTY TRICK.

2. Be prepared mentally to go through what the shareholders of Royal Gold had to endure around $10 before it rose to over $40.

3. Recognize that the strategy of DIRTY TRICK is now a LAST DITCH, Hail Mary play by the bad guys (people who cannot profit if the game is played according to the rules) to make cover as they are about to lose.

4. If you know that emotions have a nasty habit of driving your market or investment decisions, please reduce the size of your position to the point of comfort, but stay prepared to reenter if your issue becomes the target of the DIRTY TRICK.

Please remember that Royal Gold (RGLD) earned its position as a target because it was a leader

in the field and had a large frustrated short position made up of the same suspects as today.

The Mitchell Report
Email Exposes Short Seller Plot to Destroy a Public Company
February 17th, 2009 by Mark Mitchell

This is Part 3 of an ongoing series.

A few years ago, a clique of influential journalists went to extraordinary lengths to cover up the problem of illegal short selling. In the face of indisputable data and evidence, the journalists insisted, over and over, that “naked” short selling (hedge funds manipulating stock prices by flooding the market with phantom stock) rarely occurred. And they said short sellers (who profit from falling stock prices) don’t set out to destroy public companies.

Moreover, if a person were to criticize illegal short selling, the reporters would smear that person’s reputation with a savagery that was almost without parallel in contemporary journalism.

More…

1. Silicon Investor — Royal Gold fights back after Barron’s sledging 12/08/2005 10:53:58 PM.
Dear Diana Olick, we just saw your piece on the … Royal Gold Inc … http://siliconinvestor.advfn.com/profile.aspx?userid=3061762:3105siliconinvestor.advfn.com/profile.aspx?userid=3061762 – 40k – Cached – Similar pages

2. Original Sixteen to One Mine, Inc. – Forum Topic: "Gold Enters … Then came the assault against the leader, Royal Gold. …. relating to gold and a future role that it may play in supporting the Dollar in the year 2005 …http://www.origsix.com/forum2.asp?topicid=67&p=24:5471457www.origsix.com/forum2.asp?topicid=67&p=24 – 65k – Cached – Similar pages

Posted at 1:23 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

See the last sentence which implies that the Government /Treasury will make asset sales compulsory – at bid. This is more corporate welfare. Money from sales will go to the insiders at low prices and some banks may even swap paper (eg: I will sell mine to you cheap while you sell yours to me cheap). Another sign that the financial services lobby has a strangle hold on both the Democratic and Republican parties.

They win, taxpayers lose.

Monty Guild and Tony Danaher
www.GuildInvestment.com

Banks Holding Up in Tests, but May Still Need Aid
By ERIC DASH

For the last eight weeks, nearly 200 federal examiners have labored inside some of the nation’s biggest banks to determine how those institutions would hold up if the recession deepened.

What they are discovering may come as a relief to both the financial industry and the public: the banking industry, broadly speaking, seems to be in better shape than many people think, officials involved in the examinations say.

That is the good news. The bad news is that many of the largest American lenders, despite all those bailouts, probably need to be bailed out again, either by private investors or, more likely, the federal government. After receiving many millions, and in some cases, many billions of taxpayer dollars, banks still need more capital, these officials say.

The federal “stress tests” that the examiners are administering are the subject of fierce debate within the banking industry.

Regulators say all 19 banks undergoing the exams will pass them. Indeed, they say this is a test that a bank simply will not fail: if the examiners determine that a bank needs “exceptional assistance,” the government, that is, taxpayers, will provide it.

But the tests, which are expected to be completed by the end of this month, are being conducted out of public view. Federal law prohibits the unauthorized disclosure of the results of any bank examination, including the stress tests. Some investors wonder if the new tests are rigorous enough, given the potential problems lurking inside the banking industry.

Regulators recognize that for the tests to be credible, not all of the banks can be winners. And it is becoming increasingly clear, industry insiders say, that the government will use its findings to press certain banks to sell troubled assets. The hope is that by cleansing their balance sheets, banks will be able to lure private capital, stabilizing the entire industry.

In some cases, however, the investments of existing shareholders could be severely diluted by large sales of new stock.

Some of the banks could also face more stringent restrictions on employee compensation or be ordered to change their boards or management. In extreme instances, the government could wind up taking larger, perhaps even controlling, stakes.

The state of the industry will come into sharper focus next week, when big banks like Citigroup and JPMorgan Chase start reporting first-quarter results. Many analysts predict the reports will show banks are on the mend, with help from low interest rates, fat lending margins, dwindling competition and profits from trading in the financial markets in January and February. In the last six weeks, financial shares have soared on hopes that the worst for the industry is over.

But some analysts say investors’ hopes are misplaced. With the recession, banks are likely to record further large losses on credit cards, corporate loans and real estate.

“Nothing has changed with the fundamentals,” said Meredith A. Whitney, a prominent banking analyst who has been bearish on most financial institutions.

The stress tests are playing a pivotal role in the Obama administration’s sweeping plan to shore up the financial industry. Forcing many banks to raise capital might undermine the still-fragile confidence in the industry. But if only a few banks raise more money, the test might lose credibility with investors.

“Clearly there is a desire to put a seal of good bookkeeping on these banks,” said Lou Crandall, the chief economist at Wrightson ICAP. “Whether they will use this to select a couple of sacrificial lambs is unclear. It’s a big uncertainty hanging over the system right now.”

The tests, led by the Federal Reserve, rely on a series of computer-generated “what-if” projections in the event the economy deteriorates. Those include unemployment rising to 10.3 percent by next year, home prices falling an additional 22 percent this year, and the economy contracting by 3.3 percent this year and staying flat in 2010.

Top regulators say the effort could signal a new approach to supervising the risks that banks take. While federal regulators routinely monitor the financial condition of banks, one goal of the tests is to devise a common set of standards for judging losses across all 19 institutions. Examiners are also considering instruments that are not carried on banks’ balance sheets. They long escaped tough scrutiny.

As part of the tests, the banks analyzed each category of loans they held and compared their results with the “high” and “low” range of government loss estimates. If a bank expected fewer losses than the government, the regulators asked the institution to explain why.

The banks were also asked to project their earnings over the next two years to give the regulators a better sense of how much capital they would have to absorb the coming losses.

Several people involved in the process say there is a wide range of results among the institutions. Those that fall short will have six months to raise capital from private investors; if they are unable to do so, the Treasury Department has said taxpayer money will be available.

Some federal and industry officials say regulators may use the results to prod reluctant banks to sell assets under that program.

Michael Poulos, a director at Oliver Wyman, the consulting firm, said many big investors were burned after investing in financial companies last year and are averse to doing so again. The stress test findings, he said, could “make private capital more eager to come in because they will get a view of the bottom.”

At a recent breakfast with a dozen or so corporate and banking executives in New York, Treasury Secretary Timothy F. Geithner warned he would take a tough stance. Many banks, he suggested, believe the investments and loans on their books are worth far more than they really are, according to a person who attended the meeting.

Mr. Geithner said that was unacceptable. The banks, he said, will have to sell these assets at prices investors are willing to pay, and so must be prepared to take further write-downs.

Hi Jim,

Wells Fargo’s profit is obviously created through the easing of accounting principles. My question is do the bank officers realize it is BS or do they actually think they made a profit?

As always… thanks for all you do.

Regards,
CIGA Ron

My Dear Ron,

We live in a world of finance where ethics is considered criminal and should be punished and where absolute demonic criminality is considered desirable as long as the criminal is stealing on your behalf as a stockholder.

I would imagine that all banks will show a good first quarter as they begin to mark up some of their inventory. It is not clear that they have as much of a free hand as the spin says they do.

The financial; industry welcomes the change which would indicate they will accept the lies as positive when the earning statements are issued.

Respectfully,
Jim

Jim,

I’ll drink to that!

Derivative Markets…an explanation

Heidi is the proprietor of a bar in Detroit. In order to increase sales, she decides to allow her loyal customers – most of whom are unemployed alcoholics – to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Heidi’s drink now pay later marketing strategy and as a result, increasing numbers of customers flood into Heidi’s bar and soon she has the largest sale volume for any bar in Detroit.

By providing her customers freedom from immediate payment demands, Heidi gets no resistance when she substantially increases her prices for wine and beer, the most consumed beverages. Her sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes these customer debts as valuable future assets and increases Heidi’s borrowing limit. He sees no reason for undue concern since he has the debts of the alcoholics as collateral.

At the banks corporate headquarters, expert traders transform these customer loans into DRINKBONDS, ALKIBONDS, and PUKEBONDS.

These securities are then traded on securities markets worldwide. Naive investors don’t really understand the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics.

Nevertheless, their prices continuously climb, and the securities become the top-selling items for some of the nations leading brokerage houses.

One day, although the bond prices are still climbing, a risk manager at the bank (subsequently fired due his negativity), decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi’s bar.

Heidi demands payment from her alcoholic patrons, but being unemployed they cannot pay back their drinking debts. Therefore, Heidi cannot fulfill her loan obligations and claims bankruptcy.

DRINKBOND and ALKIBOND drop in price by 90 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %. The decreased bond asset value destroys the banks liquidity and prevents it from issuing new loans.

The suppliers of Heidi’s bar, having granted her generous payment extensions and having invested in the securities are faced with writing off her debt and losing over 80% on her bonds.. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 50 workers.

The bank and brokerage houses are saved by the Government following dramatic round-the-clock negotiations by leaders from both political parties.

The funds required for this bailout are obtained by a tax levied on employed middle-class non-drinkers.

Posted at 5:44 PM (CST) by & filed under Guild Investment.

Dear CIGAs,

THE WORLD ECONOMY IS WEAK AND GETTING WEAKER, BUT LET US FOCUS ON THE POSITIVE IN THIS MEMO.  IN SOME AREAS, IMPROVEMENTS ARE TAKING PLACE.

LAST WEEK WAS THE G-20 MEETING

The primary new event was the creation of 250 billion dollars from nothing via Special Drawing Rights (SDR’s), 250 billion dollars in all.  These SDR’s can be used as reserves by the countries that are granted this fantasy money.  Over 30 percent, about 85 billion dollars, of this fantasy money is meant for the emerging world.  This is enough to keep optimism increasing in developing world.

OTHER MAIN POINTS FROM THE G-20

1. Even though protectionism was evident in the agendas of the many of the large developed countries, a one trillion dollars package of financing and loans was enough to get commodity producers like Brazil and others to agree to the total package.

2. Smaller, weaker economies will benefit from more trade finance, and spurring international trade should help to thaw the world financial freeze.  Altogether, this is a positive event for the global markets.  The event was filled with bogus PR to be sure, but it did produce some consequential liquidity improvements for the small countries of the world and their banking systems.  This should benefit share prices in emerging markets.

EMERGING MARKETS STOCKS WILL DO VERY WELL AS A RESULT OF THE G-20 LOANS AND HANDOUTS

Mexico was the first to take an interest in the new IMF loans, and more countries will follow.  This can help backstop weaker emerging countries like South Korea, and is good for demand from China and India.  We like China very much here, and we will continue to buy Chinese stocks during periods of price weakness.

MONETARY AUTHORITIES OF MANY COUNTRIES HAVE CAVED IN TO QUANTITATIVE EASING (PRINTING MONEY)

We believe it is just a matter of time until the Western Europe’s European Central Bank goes for quantitative easing (QE). 

Thus far, Japan, the U.S., Britain, Switzerland, and many small countries, such as in Eastern Europe have opted for some form of QE.  The rest of Western Europe has been more responsible and has not done so.  When the European Central Bank joins the party, we expect gold will take off. 

It appears that the IMF is being groomed to be the world’s central bank, taking this responsibility from the other major central banks, which have failed miserably in their role.

Poor management coming from the central banks of Europe, Britain, the U.S., and Japan cannot be excused.  It is good that the IMF is being groomed.  The world is searching for an alternative to the U.S. dollar.  For example, currency swap arrangements organized by China and Russia with some of their trading partners (allowing the countries to bypass the dollar as the settlement currency for their international trade), argue for regional currency blocks to facilitate trade.

While it is clear that the world has no current substitute for the U.S. dollar as the world’s reserve currency, the day the dollar loses that status inches closer.  As the U.S. continues to bumble the banking system recovery, and continues to enrich the failed bankers at the expense of the taxpayers, the rest of the world will press for an alternative to the dollar.  Even if a few sacrificial bank CEOs are fired, the institutions which provide so much money to politicians’ re-election campaigns will continue to grow richer.

A CALL TO ACTION

A group of experts assembled by the Wall Street Journal came up with twenty very thoughtful principles for rebuilding the financial system.  The piece titled A Call To Action helps explain what went wrong and why it behooves us to make sure that the principles are implemented.  In our cynical moments, we imagine that many of these principles will receive no more than lip service as they will be perceived to decrease the profits of those who have been successfully manipulating the system to their own advantage.

Here is the link to the top twenty principles as developed by participants in The Wall Street Journal:  A CALL TO ACTION

LONGER TERM, WE HAVE A BIG PROBLEM IN THE U.S…BANKS, INSURANCE COMPANIES, AND THE REST OF FINANCIAL SERVICE INDUSTRY THAT WIELD TOO MUCH POWER

Just as President Eisenhower warned about the military industrial complex, many wise writers (often financial, academic and non big bank types) believe that the banking system has too much power, and the current bailouts are being done in a way that emphasizes the big banks’ power.

We will paraphrase a major article on this subject in our next email.  In this letter, we want to focus on the positives, and explain why the current market environment will result in a continued stock market rally.

China’s Shanghai Composite Index

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India’s Bombay Sensitive Index

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SUMMARY

Emerging economies, especially China and India have been benefited by the recent IMF meeting. 

After the recent rally, many world markets are overbought.  We expect the rally to continue after a short rest.  We are buying Chinese and Indian stocks on weakness to add to our existing positions.  We continue to believe that technology in the developed world will rally in the short term, and that oil and gold will rally in the long term.  We plan to use price declines to add to our oil and gold positions.

PORTFOLIO REVIEWS

We have been happy to review readers’ portfolios free of charge, and will continue with this offer for any portfolios submitted before April 30, 2009.  After that, we will be unable to offer the courtesy.

Thanks for listening.

Monty Guild and Tony Danaher
www.GuildInvestment.com

Posted at 3:17 PM (CST) by & filed under In The News.

Dear CIGAs,

FLASH COMMUNICATION:

Sir Richard Russel names Gold the "Ultimate Cash"

Click here to view the article…

Jim Sinclair’s Commentary

The key element of gold future strength ($1650) is the fact that all the financial needs of any entity that threatens the social order internationally will be met with bailout funds devoid of limits.

GM Pensions May Be ‘Garbage’ With $16 Billion at Risk
By Holly Rosenkrantz

April 8 (Bloomberg) — Den Black, a retired General Motors Corp. engineering executive, says he’s worried and angry. The government-supported automaker is going bankrupt, he says, and he’s sure some of his retirement pay will go down with it.

“This is going to wreck us,” said Black, 62, speaking of GM retirees. “These pledges from our companies are now garbage.”

As the biggest U.S. automaker teeters near bankruptcy, workers and retirees like Black are bracing for what may be $16 billion in pension losses if the Pension Benefit Guaranty Corp. has to take over the plans, according to the agency. As many as half of GM’s 670,000 pension-plan participants might see their benefits trimmed if that happened, an actuary familiar with the company’s retirement programs estimates.

The possibility that GM might dump its pension obligations is likely to intensify debate over the treatment of executives of companies that receive U.S. aid. GM Chief Executive Officer Rick Wagoner, ousted by the Obama administration last month, may receive $20.2 million in pensions, according to a regulatory filing.

More…

Fed Saw Downside Risks Predominating at March Meeting

April 8 (Bloomberg) — Federal Reserve officials feared the U.S. economy might fall into a self-reinforcing cycle of rising unemployment and slumping business and consumer spending, making credit tighter in a weak financial system, minutes of the Federal Reserve’s March meeting show.

“Participants expressed concern about downside risks to an outlook for activity that was already weak,” minutes of the March 17-18 meeting released in Washington said. “Credit conditions remained very tight, and financial markets remained fragile and unsettled, with pressures on financial institutions generally intensifying.”

The outlook prompted the Federal Open Market Committee in a unanimous vote to boost its open-market purchases of bonds by $1.15 trillion, continuing its unprecedented increase in money supplied to the economy. The U.S. central bank has used its own balance sheet to provide financing for markets in commercial paper, asset-backed securities and mortgage bonds, markets it deems critical for financial stability and economic recovery.e

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Jim Sinclair’s Commentary

It is not whether or not Bernanke’s plans succeed, it is the consequences of the monetary and in time fiscal actions taken that are the granite foundation of the gold price at $1650 or higher.

There is no practical solution that will permit the draining of the degree of liquidity already injected into the international monetary system. This concept is in place already, not even considering the additional funds that will be required over the next two years.

Monetary inflation is always followed by price inflation entirely independent of consideration of the level of business activity.

The two hyperinflations in the USA, the Continental and the Confederate Dollar, as well as all historically same/similar situations were currency events, not economic events. All occurred in recessionary to depression business conditions. The most recent example of this concept is the Zimbabwe dollar.

This is fact but brings no respect to the proponent that says nothing changes. It simply wears different attire.

Bernanke’s Deflation Preventing Scorecard

In case no one is keeping track, Bernanke has now fired every bullet from his 2002 “helicopter drop” speech Deflation: Making Sure "It" Doesn’t Happen Here. Bernanke’s Scorecard Here is Bernanke’s roadmap, and a “point-by-point” list from that speech.

1. Reduce nominal interest rate to zero. Check. That didn’t work…

2. Increase the number of dollars in circulation, or credibly threaten to do so. Check. That didn’t work…

3. Expand the scale of asset purchases or, possibly, expand the menu of assets it buys. Check & check. That didn’t work..

4. Make low-interest-rate loans to banks. Check. That didn’t work…

5. Cooperate with fiscal authorities to inject more money. Check. That didn’t work..

6. Lower rates further out along the Treasury term structure. Check. That didn’t work…

7. Commit to holding the overnight rate at zero for some specified period. Check. That didn’t work…

8. Begin announcing explicit ceilings for yields on longer-maturity Treasury debt (bonds maturing within the next two years); enforce interest-rate ceilings by committing to make unlimited purchases of securities at prices consistent with the targeted yields. Check, and check. That didn’t work..

. 9. If that proves insufficient, cap yields of Treasury securities at still longer maturities, say three to six years. Check (they’re buying out to 7 years right now.) That didn’t work…

10. Use its existing authority to operate in the markets for agency debt. Check (in fact, they “own” the agency debt market!) That didn’t work…

11. Influence yields on privately issued securities. (Note: the Fed used to be restricted in doing that, but not anymore.) Check. That didn’t work…

12. Offer fixed-term loans to banks at low or zero interest, with a wide range of private assets deemed eligible as collateral (…Well, I’m still waiting for them to accept bellybutton lint & Beanie Babies, but I’m sure my patience will be rewarded. Besides their “mark-to-maturity” offers will be more than enticing!) Anyway… Check. That didn’t work…

13. Buy foreign government debt (and although Ben didn’t specifically mention it, let’s not forget those dollar swaps with foreign nations.) Check. That didn’t work…

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Jim Sinclair’s Commentary

This is unusual in fighting between the Treasury and the FDIC over the substance of the upcoming Bank Stress Tests. The following are hard words: "It’s a sham," one source told The Post, describing the test as an "open-book, take-home exam" that doesn’t actually work."

FDIC BAIR(S) TEETH TAKES TREASURY’S TIM TO TASK ON TALF STRESS TEST
By MARK DeCAMBRE
Last updated: 11:13 am April 8, 2009

The stress tests the government are about to conduct on some of the nation’s largest banks is being blasted by insiders at Sheila Bair’s Federal Deposit Insurance Corp., who say it’s a pointless exercise that’s more sizzle than steak.

The FDIC’s basic beef with the stress test is that it is not a credible way to assess how much additional cash beaten-down banks will need to weather what many Wall Street experts predict will be more losses in the coming months.

The tests are conducted by the Treasury Department and the Federal Reserve on the nation’s 19 biggest banks, including behemoths Citigroup, Bank of America and JPMorgan Chase.

"It’s a sham," one source told The Post, describing the test as an "open-book, take-home exam" that doesn’t actually work.

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Jim Sinclair’s Commentary

Many of you have bought the case that the Euro zone has financial problems infinitely more serious than those of the USA. Few are focused on the simple supply of dollars hiding behind the scene awaiting their appearance on the Forex market even in a depression.

The dollar is in the process of declining in use and increasing in supply. I see this generational in nature.

Is the Almighty Dollar Doomed?

"There is also the possibility that the dollar, after its recent show of strength, will again weaken in value against other major currencies, eroding its attractiveness as a reserve currency. Confidence in the health of the U.S. economy, and therefore the U.S. dollar, could plunge because of continued large U.S. current-account deficits, an unstable banking sector and a recession-busting, expansionist monetary policy. The budget deficit, which the Congressional Budget Office estimates will reach $1.8 trillion this fiscal year, or 13% of GDP, is reaching heights not seen since World War II. (See the top 10 worst business deals of 2008.)"

I got an unexpected lesson in the power of the U.S. dollar during a visit to Tashkent, the dreary capital of Uzbekistan, several years back. While heading into town from the airport, my babbling taxi driver kept one hand (barely) on the steering wheel while his other shoved a stack of local currency, the som, into my face. He insistently urged me to trade the money for dollars. After checking in at the grim Hotel Uzbekistan, a nattily clad porter showed me and my wife to a room, fiddled with a broken TV set, and then reached into his jacket pockets for large bricks of som. He, too, persistently begged me for greenbacks. In Uzbekistan, the dollar ruled.

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Jim Sinclair’s Commentary

The demand for physical gold grows and grows, as the COMEX paper gold supply commands price. That is simply wrong. The only correction is taking delivery out of the COMEX warehouse on a continuous basis.

Going for gold: How the world’s mints are coining it
By Sarah Marsh in Vienna and Jan Harvey in London

The world’s mints are coining it as unprecedented numbers of savers search for safer investments

A few years ago his visits to the mint, founded more than 800 years ago, might have seemed eccentric. No longer. From the Russian Georgy Pobedonosets to the American Eagle, gold coin production is being cranked up in mints around the world to satisfy customers believing the assets may be immune to the global financial crisis.

Russia’s state-controlled Sberbank says it has never seen such strong demand for investment coins. In Australia, the Perth Mint had to suspend new orders for gold coins because it could not keep pace with overseas demand. And, in America, the US Mint says sales of its one-ounce American Eagle gold bullion coins rocketed by more than 400 per cent to 710,000 ounces in 2008. "The demand for gold and silver," said US Mint spokeswoman Carla Coolman, "has been unprecedented."

Austria’s Philharmonic, named after the Vienna Philharmonic Orchestra, was the world’s best-selling gold coin in the last quarter and sales soared 544 per cent in the first two months of 2009. "There is no sign of demand abating," Austrian Mint’s marketing director Kerry Tattersall said. Sales this year are expected to exceed 2008’s record levels. "At present, production is struggling to keep up with demand."

Hans Dieter Rauch, who sells both collectors’ and investors’ coins in his boutique on Graben, one of Vienna’s most exclusive shopping streets, said revenues rose 300 per cent last year. "It’s the man in the street, not particularly rich people but normal citizens like you and me," said Mr Rauch, 65, monitoring the fluctuating price of gold on a screen in his back room.

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Jim Sinclair’s Commentary

Public and private, pension fund failure is the stuff that social unrest is made of.

Investment losses hit public sector pensions
By Deborah Brewster in New York
Published: April 7 2009 19:59 | Last updated: April 7 2009 19:59

The crisis facing pension plans for US state and municipal employees is deepening as investment losses deplete the resources of retirement funds for teachers, police officers, firefighters and other local government workers.

The largest state and municipal pension plans lost 9 per cent of their value of more than $2,000bn in the first two months of this year, according to data from Northern Trust. That followed a loss of 30 per cent in 2008, equal to about $900bn. Smaller funds, which underperform the larger ones, lost more, experts say. The losses have left retirement plans about 50 per cent funded – that is, they have only half the money needed to cover commitments to 22m current and former workers, experts say. State governments typically put the funding figures closer to 60-70 per cent, although most experts use different calculations.

“There is a massive national underfunding problem,” said Orin Kramer, chairman of the New Jersey pension fund. ”

Unlike company pension plans, state and municipal retirement funds have no federal guarantee fund. This has led to predictions of benefit cuts and possible federal intervention.

“The federal government will get involved, without question,” said Phillip Silitschanu, analyst at Aite Group, a consultancy. “They could provide federal loans, or demand cutbacks as a condition of stimulus money, or there could be a federalisation of some of these pensions.”

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Jim Sinclair’s Commentary

We all know this.

Gold ‘will exceed $1000’, bullion dealer predicts
2009/04/08 
Johannesburg – Gold prices could “easily re-attain the $1000-mark and may well push up towards and perhaps even through the $1100 barrier in the coming months”, precious metals consultancy GFMS predicted yesterday.

“The price may have pulled back a fair bit from the February highs, but that was largely just the market‘s reaction to jewelry demand crumbling and scrap booming,” said GFMS executive chairman Philip Klapwijk.

“It‘s far from game over for investors, and it will be that crowd which sets the price alight,” Klapwijk said.

Releasing its latest review on the gold market, Gold Survey 2009, GFMS singled out the fiscal and monetary policies currently being enacted, especially by the US administration, as the root cause of gold‘s potential.

GFMS also expects central banks to be reluctant to raise interest rates while the prospects for economic growth are shaky and says that the solidity of the US dollar has to be called into question, chiefly as a result of doubts over others‘ desire or ability to continue financing an explosion in US government debt.

“Strength in investment will certainly be needed to overcome weakness in the fundamentals.

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Jim Sinclair’s Commentary

Yes, a more transparent world, modestly delayed.

UPDATE 1-US to delay bank test results for earnings-source
Tue Apr 7, 2009 1:09pm EDT

WASHINGTON, April 7 (Reuters) – The U.S. Treasury Department is planning to delay the release of any completed bank stress test results until after the first-quarter earnings season to avoid complicating stock market reaction, a source familiar with Treasury’s discussions said on Tuesday.

The Treasury is still talking about how results of the regulatory stress tests on the 19 largest U.S. banks will be released, and may disclose them as summary results that are not institution-specific, the source said.

The government is testing how the largest banks would fare under more adverse economic conditions than are expected in an attempt to assess the firms’ capital needs. The tests are due to be completed by the end of April, but Treasury has said they may be finished before then.

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Jim Sinclair’s Commentary

You can be sure there will be many more trips to the bailout well.

Fed’s Fisher says U.S. economy grim
Wed Apr 8, 2009 4:25am EDT
By Leika Kihara

TOKYO, April 8 (Reuters) – The U.S. economy is grim, and the Federal Reserve is "duty bound to apply every tool" to clean up the financial system and clear a path for a return to sustainable growth, Richard Fisher, president of the Dallas Fed, said on Wednesday.

But he said monetary policy alone would not be enough to resuscitate the economy, adding fiscal stimulus was critical in providing a spark for U.S. growth.

"Monetary policy accommodative techniques are necessary but insufficient to the task," Fisher told a symposium hosted by a private think tank in Tokyo.

"The trick to fiscal policy is to provide the spark, to provide the right incentives, get the small and medium-sized firms create jobs again, create dynamism in the economy without planting the seeds of inflation."

Fisher, who is not a voting member on the Fed’s policy-setting committee this year, said the U.S. economy probably shrank in the just-ended first quarter of 2009 at a rate similar to the 6.3 percent annual decline posted in the fourth quarter of 2008. He gave no timeline for a potential recovery.

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Jim Sinclair’s Commentary

Keep this in mind as you listen to the party line.

Financial Crisis ‘Far From Over,’ Panel Says
Govt. May Spend More than $4 Trillion but Economy Faces ‘Prolonged Weakness,’ Oversight Panel Reports
By CHARLES HERMAN and ALICE GOMSTYN
ABC NEWS Business Unit
April 7, 2009

Though some economic measures are improving, the financial crisis "is far from over" and "appears to be taking root in the larger economy."

This, despite the government’s commitment to spend trillions of taxpayer dollars on a massive bailout of the financial system.

These were the findings released in a report today by the Congressional Oversight Panel, the body charged with overseeing the government’s Troubled Asset Relief Program, the $700 billion plan aimed at bailing out the country’s financial sector.

"We still have a long way to go. A very long way," Elizabeth Warren, the Harvard Law School professor who chairs the panel, said in an interview today with Bloomberg News.

The panel reported that the government has spent, lent or set aside more than $4 trillion through the Troubled Asset Relief Program, the Federal Reserve and the Federal Deposit Insurance Corporation.

Today, the "credit markets no longer face an acute systemic crisis in confidence that threatens the functioning of the economy," the report said.

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Jim Sinclair’s Commentary

Take a sharp pencil to any of this and another conclusion surfaces. The FDIC will be granted whatever funds are required. The implication here speaks only to more printing of money but that is what quantitative easing is all about. Nothing is going to fail to meet the needs created by the ongoing real implosion, the recognition of the worthless OTTIs, other than temporary impaired assets that have been permanently impaired from day one of this disaster.

FDIC’s Insurance Commitments 34% Higher Than Reported
April 6, 2009 – 4:00 am

[Reader note: I thought it useful to add commentary around the FDIC data. Those that would prefer to skip straight to it, see the chart and read paragraphs 4-9].

Conventional wisdom says that financial companies are having trouble borrowing because credit markets are broken. This is dangerously wrong. The credit market itself is fine. It’s balance sheets that are broken. They have so little equity relative to their assets, there’s no cushion to protect creditors from losses.  With few good borrowers available and with the price of credit being capped by government, naturally creditors have little inclination to lend.  Washington’s solution is to “guarantee” all manner of risky investments, to use the public’s balance sheet to absorb trillions of dollars worth of private sector losses.  We’re told this will “restore confidence” in borrower balance sheets, leading to increased lending.  But this policy is dangerously misguided and may very well lead to economic Armageddon.

In point of fact, our fractional reserve financial system is just a gigantic Ponzi scheme.  It can only survive as long as it expands, which is to say, as long as new debt is flushed through the system to finance old debt.  But like all Ponzi schemes, the larger it grows the more unstable it becomes.  Eventually, it collapses of its own weight.

With this in mind, government should be concerned with paying down debt, not expanding it.  Deficit-financed bailouts and stimulus only increase the size of the Ponzi.  The bigger it grows, the harder it will crash.

My thoughts came back to this recently when I looked at FDIC’s 12/31/08 balance sheet.  Note at the bottom of that link the estimate for total insured deposits: from Q3 to Q4 it increased only a smidge, to $4.8 trillion from $4.6 trillion.

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Posted at 3:02 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

“Risk” came back into vogue today and with it up went the Euro, crude oil, most commodities and also gold. Down went the Dollar and up went the Yen as carry trades were favored. Copper topped $2.00 once again although it could not hold above that level on the close. Even lowly natural gas moved higher. Poor ol’ pork bellies were left out of the party however (folks – eat more bacon!).

Gold bulls have managed to push prices back above the broken neckline of the short-term bearish head and shoulders pattern shown on the daily chart. That is a minor victory but they will need to continue their push to get it back above $900 to give themselves a bit of breathing room. That would allow some chart interpreters to see a consolidation range trade set up especially after price bounced off of the 100 day moving average.

Gold is still caught in the tug of war between between risk and risk aversion with traders unsure exactly how to trade it. Physical buying of gold from overseas, especially India, is strong below the $900 level but that is insufficient in and of itself to push prices higher. It can serve to put a floor under the market but to take gold higher, it is going to require strong investment interest. Interestingly enough, the reported holdings of the gold ETF, GLD, have remain fixed for some time now.

A side note here is that a case can be made for gold forming a bullish head and shoulders pattern on the longer-term weekly charts. That would requires a close above the $1000 level, preferably nearer the $1030 level. That would provide a target near the $1360 level. Of course before that could happen, gold would first have to get back above $930 so do not get too excited if you are a bull. Plenty of technical work remains for gold bulls as bears are still in charge of the market for the short term as there is always the risk of further long liquidation if gold were to move below the 100 day moving average.

There were no deliveries for April gold reported today.

Silver drawdowns out of the Comex continue on their torrid pace with another 2 million ounces coming out yesterday. Whoever is taking the silver out of the HSBC warehouses has managed to draw down stocks from near the 80 million ounce mark (registered category) in December of last year to yesterday’s 63 million ounce mark. That is no small feat. I think it no coincidence that the reported holdings of the silver ETF, SLV, have also shown a reported increase since the first of this year of some 52 million ounces. If SLV is sourcing silver from the Comex warehouses, the paper silver shorts at the Comex would do well to begin getting nervous.  Still, silver is not yet acting like any of the shorts at the Comex are concerned – yet! This is a fascinating development to monitor. Keep in mind that the only way to effectively break the back of the paper shorts at the Comex is to strip the metal out of the warehouses. If this continues for silver, and that is a big “IF”, we are going to see just how effective that strategy will be. Only the risk of having to stand and deliver can force the shorts out of the game. They do not fear regulators.

Bonds were up on a day in which risk was back in and defied the general price action during such periods which usually sees selling hit that pit. The reason – The Fed was out buying bonds today (don’t you love our free markets?). Nothing like artificially attempting to work over the market rate of interest.

Crude oil continues trading as a currency and not a commodity moving inversely to the Dollar – the new “anti-Dollar” trade is apparently now crude oil….

Microsoft and IBM lifted the equity sector today which supported the generally optimistic view towards commodities.

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

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