Posted at 5:49 AM (CST) by & filed under General Editorial.

Dear CIGAs,

The following article is brought to you by CIGA Greg Hunter.

The Madoff Sideshow
By Greg Hunter 1/7/09

A friend of mine, who is a crack investigative producer, just got a gig with a major network. His new job will be to cover the Madoff story. There is no doubt this is a big story and in the press been called the “crime of the century.” Madoff is a self proclaimed fraudster who puts a face on the Wall Street “banksters” as in gangsters with brief cases instead of Tommy Guns. But for most Americans this story will be nothing more than tragic theatre. This story’s outcome will not matter to those in or headed for financial ruin.

The real story is what’s going on over at the Treasury, Federal Reserve and Congress. This trio has already spent, “loaned” or committed 8.5 trillion dollars to the economic problems plaguing our country. It appears the carnival of money printing is nowhere near ending. Now, there is even talk of another government bailout for the people who were ripped off by Madoff. This plan proposes to recapitalize SIPC, the Securities Investor Protection Corporation, with 15 billion dollars to augment its paltry 1.5 billion dollar insurance pool to protect investors. I guess 1.5 billion does not go very far when the pool of cheated customers is 50 billion dollars deep. Where do all these bailouts stop? America, in my view, has gone from a capitalistic society to bailout nation in little more than a year.

The Federal Reserve is in the process of bailing out the nation through a series of “lending facilities.” The TAF, TSLF, MMIFF, TALF and PDCF are the acronyms that are funnelling money to everything from banks to brokers to money market funds and even select hedge funds. None of these “lending facilities” were around little more than a year ago. All of this bailout activity adds up to more than 2 trillion dollars and is being done in secret without the public knowing who gets money for what! The latest facility to be added to the bailout bucket is provided by the Treasury and is called the TIP or Targeted Investment Program. This one is for “Citi-style” rescue programs. The government is clearly ready to bail out just about any business that issues a W-2.

Add all these “programs and lending facilities” together with the bailout of GM, Chrysler, AIG, the monetization of billions of mortgage debt from bankrupt Fannie Mae and Freddie Mac, along with the upcoming Obama stimulus package, and some people are getting worried about a little prosperity killer called inflation. In a few years, most people will not remember the Madoff story but will be living or surviving some pretty big price increases in just about everything they consume. In the end, it will all come down to a crisis in the dollar because just like Madoff it will no longer be trusted.

There is only one alternative to the dollar
By David Hale
Published: January 5 2009 19:01 | Last updated: January 5 2009 19:01

The great challenge confronting the foreign exchange market at the start of 2009 is finding a good alternative to the US dollar. One of the ironies of market events during 2008 was that the US financial crisis produced a flight to safety in the dollar. The dollar erged triumphant from a financial debacle that centred on $1,300bn (€960bn, £890bn) of subprime US mortgage loans. The fallout has triggered a $32,000bn decline in global stock market capitalisation and driven all the Group of Seven leading industrialised countries into recession.

The dollar slumped against the euro during the final weeks of 2008 but fears about the financial system still drove US Treasury yields down to zero on three-month paper and less than 2.1 per cent on 10-year notes. This fear factor is likely to sustain demand for the dollar during the early months of 2009.

There is not now a clear alternative to the dollar because all big economies have slid into recession. Real gross domestic product could contract by 1.5 per cent in both the US and Europe during 2009 and by as much as 2.5 per cent in Japan. The decline in world trade and commodity prices will also reduce significantly the growth rates of the emerging market economies. South Korea and Taiwan are already in severe slumps. The growth rate of China could halve.

The US economy could be the first to emerge from recession this year because it appears to be headed for a far more aggressive macroeconomic stimulus programme than any other country. Barack Obama’s administration will announce a $700bn-$800bn multi-year fiscal package focusing on cuts in payroll taxes, aid to state and local governments and infrastructure investment. The Federal Reserve is also engaging in a programme of unprecedented monetary stimulus. It has slashed its core lending rate to zero and tripled the size of its balance sheet since August. Ben Bernanke, the Fed chairman, has also stated his willingness to engage in further large liquidity injections to buy mortgages, consumer loans and government securities. Mortgage rates have recently eased to 5.1 per cent after remaining above 6 per cent during the past year.

The European response to the recession has been far less aggressive. The European Central Bank is still under the influence of the Bundesbank and will ease monetary policy far more gradually than the Fed. Some Bundesbankers are opposed to cutting interest rates at this month’s meeting. The ECB policy could produce political tensions because interest rate spreads on Greek and Spanish bonds have risen sharply compared with German bonds. Japan’s government has been announcing modest fiscal policy changes but it cannot act decisively since it no longer controls the upper house of the Diet. And an election, before September, could produce a change of government.

More…

Posted at 3:59 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

It is difficult to get an accurate read on today’s price action because it was dominated by front running of index fund rebalancing to conform to changes being made in some of the major commodity indices. Copper was up 7% at one time today based solely on a heavier weighting of the metal in two of the indices. There was no fundamental news that I was aware of but that does not matter for these players – they have to take on positions in accordance to the percentage weightings that they are given in the index. If the composition of the index is raised to 6% from 4% in copper for example, then the funds have to take an additional 2% of their monies and stick it in a long copper position, regardless of what the fundamentals might or might not be. If the composition of gold is lowered from 8% to 6%, then they have no choice but to sell enough gold long positions to bring their holdings back down to a 6% weighting in the yellow metal. Obviously, the makeup of these indices determines a great deal of the price action across the various commodity markets.

Frankly I find the idea of reducing the weighting of gold in the indices for 2009 to be very odd. Gold was one of the very few items that showed a gain for 2008 – yet its weighting is lowered?  What we see in the US equity indices is the exact opposite. Poor performing stocks are gotten rid of out of the index as quickly as possible while the best performing stocks are added to the index. That way the bureaucrats can attempt to keep the index levitating. Yet here we have a case where the index managers made a deliberate decision to lower the weighting of the best performing commodity for all of 2008. Let’s see someone come up with a rational explanation for this – don’t hold your breath because there is none.

Needless to say, with all this as a backdrop, gold was promptly clocked at the opening of pit session trading at the Comex as yesterday’s weakness coupled with Dollar strength brought in more selling overnight which continued into today’s session. The metal traded down into the 20 day moving average before rebounding sharply as dip buyers surfaced in a large way especially late in the morning. The spike well off the session low has to be encouraging for the friends of gold for that occurred even with frontrunning of upcoming forced selling in gold by way of index fund rebalancing. The recovery in the Euro from its worst levels did not hurt matters any for gold bulls.

To build on today’s nice spike we need to see a higher close tomorrow. That will inspire confidence among the gold bulls that the reaction is finished and unnerve some of the weaker-handed shorts whose covering can be expected to push prices back closer to $880 once again. I am still a bit leery about the upcoming index fund rebalancing as that will commence in a couple of days time so we need to be alert to actions coming off of that front.

Technically gold will need to maintain its footing above the $825- $830 area to keep the technical chart picture from deteriorating. That should prove to be a strong area of support if this uptrend is going to continue into the new year. The fact that it managed to close back above psychological round number support at $850 is very friendly. Resistance still lies over head at the $880level which is clearly being defended by our “friends”, the bullion banks who work for their monetary masters in a mutually symbiotic relationship (don’t you love the free markets we have here in the USA). The 10 day moving average is still moving upwards which is a positive  and  gold’s ability to recapture that level in today’s spike action no doubt unnerved many of the shorts whose covering near the close could easily be observed from the near vertical rise in the last 5 minutes of pit session trading.

Again, those who are sick and tired of playing in the private sand box of the bullion banks and having their castles kicked over need to learn new tactics. You cannot expect different results if you are going to employ the same worn out strategy again and again. Take the physical metal OUT OF THE COMEX WAREHOUSES if you want to put an end to this. Standing for delivery is a good thing but if you merely take the warehouse receipt in lieu of the actual metal you have not done anything to short-circuit the bullion banks. You MUST REMOVE THE METAL. Fund managers that insist on continuing your brain-dead strategy of chasing momentum higher and higher could turn the tables on your enemies at the Comex and simply begin systematically acquiring the metal from Comex inventory. You are not trading soybeans here – this is gold and if you want to profit from this market then get rid of your algorithms and use your minds.

I might as well mention here that like most other things associated with the Comex, I am now having questions with the warehouse stocks number that they are releasing. In spite of very heavy deliveries occurring in the month of December (nearly 50% of the entire registered category), we saw an almost imperceptible change in the numbers being reported for the warehouse stocks. I find that quite difficult to believe. If nothing else we should have seen some changes occurring between the registered and eligible category. Once again when it comes to the paper gold market, we get nothing but more murkiness. Personally I miss the old full sized gold contract that was up and running when the CBOT managed it; at least we  had some openness and transparency in the contract with that exchange. If the Comex gold contract ever does become extinct, they will have no one to blame but themselves. We live in an age of increasing sophistication among traders and investors who demand transparent markets and level playing fields. The inability or unwillingess of the Comex authorities to provide either leaves no one but themselves to blame should traders vote with their feet and take their business elsewhere.

I mentioned yesterday the fact that the commodity currencies, (the Australian, New Zealand and Canadian Dollars), were all trading higher against the US dollar and that we needed to keep an eye on that as it might signify a bottoming of the commodity markets. Those three currencies are all trading above their respective 50 day moving averages. They are still below the 100 day however so we do not have an all clear sign as far as a trending move goes. Of the three, the Canadian Dollar is showing the most strength today as of the time I am writing this. That probably is the result of the action in the TSX which is seeing energy stocks and natural resource stocks all performing quite nicely. There are obviously strong money flows into Canada right now.

I also mentioned that the fundamentals for the platinum group of metals (platinum and palladium) were extremely weak and if they began showing signs of bottoming action it would also have a positive effect on the entire complex. Today palladium took off to the upside completely negating yesterday’s weak showing. Should it break through the $200 level and maintain its footing above that level, that alongside of further upward action in the Aussie, Kiwi and Loonie, would have to be respected as a sign that the complex has put in a bottom. The problem in attempting to decipher all this mess is that the fundamentals are murky at best but the index funds are throwing money into the markets willy-nilly irrespective of such things so you get a situation where you are unclear as to what is really taking place – are these markets actually bottoming in the midst of a global slowdown or are the technicals now saying that prices have gotten too cheap and are now screaming buys. We do have some markets where the fundamentals argue that prices are definite buys – others are not there yet but they are still going up as index fund money flows into them anyway. Anyone who claims to have all of this figured out is far wiser than I am and I will be the first one to come and sit at their feet and learn. For now, short term scalping might be a better bet for traders because these damn index funds can spin out on a dime and exit as fast as they came crashing in. Their giddiness of one day can be replaced by depression and despair the next. Today however it is all bells and whistles as they are busy slinging money at anything that looks, talks, walks or smells like a commodity. Ah yes, such finesse in trading is a thing of beauty to behold. I am sure it must have taken those who manage these institutions every bit of 15 minutes of life experience to learn how to trade in such a skillful fashion.

Yesterday I remarked about crude oil saying that it would take a strong close above $50 to convince me that a new uptrend is beginning. Today it briefly flirted with that level before sellers showed up in force and promptly beat it back down. Still, this market has to be respected because any further eruptions on the geopolitical scene and traders will be focusing solely on that as they rush in to buy. For right now it does appear that crude is encountering selling pressure near  the $50 level which also happens to closely correspond to the 50 day moving average – a major technical resistance area. Tomorrow’s session should clear things up a bit in regards to this market.

Bonds continued to wilt dropping almost a full point today before managing a bounce. They are perilously close to the 40 day moving average which if it cannot hold, will send the fund longs fleeing for cover. Given the steepness of the decline, I would expect to see some short covering coming into this market if for no other reason than they are short term oversold after being overbought for so long. Has the bubble in the bonds finally popped? Again, I am not sure but one thing is certain, the level near 141^27 – 141^30 is formidable resistance. If bonds punch through that level it will mean the Fed is losing their battle against deflation.

The mining shares rebounded today following the action in the metal itself as both the HUI and the XAU are higher and are trading above their respective 10 day moving averages. The bearish divergence on both charts is a reason for concern so this sector will have to quickly push through last week’s highs to provide the bulls with fresh recruits to their side. That level is 127 on the XAU and 309-311 on the HUI. If they hesitate there shorts will be emboldened and short term oriented longs will bail out. The onus is now on the bulls to provide sufficient firepower to assuage any concerns. All in all a nice showing in all things golden today. Let’s see if that can continue tomorrow.

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

January0609Gold1230pmCDT.jpg

Posted at 12:24 PM (CST) by & filed under In The News.

Dear CIGAs,

There is absolutely no question that the price of gold will reach $1200, $1650 and then continue onward to Alf’s numbers.

Three hoots for Panizutti, a close friend of Carlo Fibonacci.

Gold May Advance for Eighth Year as ‘Perfect Insurance’ Sought
By Nicholas Larkin, Claudia Carpenter and Pham-Duy Nguyen

Jan. 6 (Bloomberg) — Gold, the best-performing metal in 2008, may appreciate for an eighth year as investors seek a refuge from declining interest rates at the same time that central banks inject more cash into the banking system.

The metal will average $910 an ounce in 2009, 4.3 percent more than last year, according to the median forecast of 20 analysts, traders and investors surveyed by Bloomberg. Silver and platinum, which averaged at least 12 percent more in 2008, will decline this year, the survey showed.

Gold prices may strengthen after about $29 trillion was wiped offequities last year, the Federal Reserve cut interest rates to as low as zero and governments sought to end the worst financial crisis since World War II. The metal was one of only four commodities to rise when the Reuters/Jefferies CRB Index fell 36 percent, the worst year in a half-century.

“People fear inflation, they fear the credit crunch and they fear currency losses, and gold is the perfect insurance against all of that,” said Frederic Panizzutti, a senior vice president at Geneva-based bullion refiner MKS Finance SA, who forecasts gold will average more than $900 in the first half of 2009. Panizzutti was the most accurate forecaster in the London Bullion Market Association’s 2008 survey.

Average gold prices have risen for seven consecutive years, the longest winning streak since at least 1949. While the return of 5.8 percent through 2008 was the smallest since 2004 in dollar terms, gold rose 11 percent in euros and 44 percent in British pounds, data on Bloomberg show.

More…

Jim Sinclair’s Commentary

This number will rise to $17.2 trillion by June of 2010 or sooner.

You want to own the dollar and have no Gold? That is called financial suicide, yet horses still run back into burning barns from time to time, therein killing themselves.

The $8 trillion bailout
Many details of Obama’s rescue plan remain uncertain. But it’s likely to cost at least $700 billion – and that would push Uncle Sam’s bailouts near $8 trillion.

By David Goldman, CNNMoney.com staff writer
Last Updated: January 6, 2009: 9:28 AM ET

NEW YORK (CNNMoney.com) — Sitting down? It’s time to tally up the federal government’s bailout tab.

There was $29 billion for Bear Stearns, $345 billion for Citigroup. The Federal Reserve put up $600 billion to guarantee money market deposits and has aggressively driven down interest rates to essentially zero.

The list goes on and on. All told, Congress, the Treasury Department, the Federal Reserve and other agencies have taken dozens of steps to prop up the economy.

Total price tag so far: $7.2 trillion in investment and loans. That puts a lot of taxpayer money at risk. Now comes President-elect Barack Obama’s economic stimulus plan, some details of which were made public on Monday. The tally is getting awfully close to $8 trillion.

Obama’s plan would combine tax cuts with infrastructure job creation efforts. Economists say it could serve as an integral piece to the government’s remaining economic recovery puzzle.

More…

 

Jim Sinclair’s Commentary

Yes, "MASSIVE" is a good description of the up-coming, DOWNWARD heading US dollar.

Willem Buiter warns of massive dollar collapse
Americans must prepare themselves for a massive collapse in the dollar as investors around the world dump their US assets, a former Bank of England policymaker has warned.
By Edmund Conway, Economics Editor
Last Updated: 6:32PM GMT 05 Jan 2009

The long-held assumption that US assets – particularly government bonds – are a safe haven will soon be overturned as investors lose their patience with the world’s biggest economy, according to Willem Buiter.

Professor Buiter, a former Monetary Policy Committee member who is now at the London School of Economics, said this increasing disenchantment would result in an exodus of foreign cash from the US.

The warning comes despite the dollar having strengthened significantly against other major currencies, including sterling and the euro, after hitting historic lows last year. It will reignite fears about the currency’s prospects, as well as sparking fears about the sustainability of President-Elect Barack Obama’s mooted plans for a Keynesian-style increase in public spending to pull the US out of recession.

Writing on his blog, Prof Buiter said: "There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place."

He said that the dollar had been kept elevated in recent years by what some called "dark matter" or "American alpha" – an assumption that the US could earn more on its overseas investments than foreign investors could make on their American assets. However, this notion had been gradually dismantled in recent years, before being dealt a fatal blow by the current financial crisis, he said.

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Jim Sinclair’s Commentary

Pakistan in the News:

Taliban kill two US ‘spies’ in Pakistan: official

MIRANSHAH, Pakistan (AFP) — Taliban militants hanged one man and shot dead another in a restive Pakistani tribal region near the Afghan border, after accusing them of spying for the United States, an official said Tuesday.

The body of local tribesman Shahjir Khan, 25, was found early Tuesday dumped in the central market of Miranshah, the main town in the North Waziristan tribal district, a security official told AFP.

A note found with Khan’s body said he had been hanged because he had spied on Taliban activities and passed information to the United States, the official said.

The bullet-riddled body of an Afghan refugee identified as Akram Khan was found late Monday near the village of Sarobi, some 10 kilometres (six miles) south of Miranshah, with a similar note, he said.

More…

Pakistan Agencies Aided Mumbai Attack, Singh Says (Update1)
By Bibhudatta Pradhan and James Rupert

Jan. 6 (Bloomberg) — “Official agencies” in Pakistan supported the militants who attacked Mumbai in November, Indian Prime Minister Manmohan Singh said, making India’s sharpest accusation yet that Pakistan’s government was involved.

“There is enough evidence to show that, given the sophistication and military precision of the attack it must have had the support of some official agencies in Pakistan,” Singh told chief ministers of India’s states today at a meeting on counter-terrorism.

India yesterday gave Pakistan and other governments what it said was evidence linking Pakistani “elements” to the Nov. 26- 29 attack on Mumbai, increasing pressure on its neighbor to act against the militant group India has blamed for the assault. It is unclear how long Pakistan will need to judge the evidence and decide on any action, Farhatullah Babar, a spokesman for Pakistan’s president, told India’s NDTV television today.

More…

Pakistan ‘knew of Mumbai plot’

A senior Indian government official has suggested that leading figures in the Pakistani establishment must have known of the plot to carry out last November’s deadly attacks in Mumbai, and hinted that some may have actively supported it.

Shivshankar Menon, India’s foreign secretary said he found it "hard to believe that something of this scale … could occur without anybody, anywhere in the establishment knowing that this was happening."

Speaking to reporters in New Delhi, Menon dismissed repeated Pakistani assertions that the attacks were carried out by "non-state actors" and said India was unimpressed by Pakistani pledges to crackdown on suspects.

The attacks on multiple targets in India’s financial capital lasted for nearly three days and left 179 people dead with hundreds more wounded.

Menon’s comments came after Indian officials handed Islamabad evidence they say clearly shows the attack originated in Pakistan.

New Delhi has previously been careful not to blame the attacks on the Pakistani government, and Monday’s statement accused "elements in Pakistan" of being behind the plot.

More…

Posted at 8:07 PM (CST) by & filed under General Editorial.

My Dear Extended Family,

Today may set the record for emails sent to you on key subjects.

I am writing to you from Africa and it is quite late here.

In the now 50 years of my career, I have never seen so many subjects in one day demanding immediate clarification.

It is my joy to serve you.

Respectfully yours,
Jim

If you are currently not receiving JSMineset emails and would like to, enter your email address in the Join Our Mailing List box in the top right corner. Our emails are purely informational and we do not sell our list to ANYONE. You can opt out at any time if you no longer wish to receive notifications.

Posted at 7:46 PM (CST) by & filed under General Editorial, Trader Dan Norcini.

Dear CIGAs,

In relation to the story Jim brought to your attention earlier about the Fed monetizing US agency debt…

The reason they are being forced into buying the debt is because no one else wants it. We have been charting this for some time here at the site by monitoring the Custodial data from the US Federal Reserve system.

I am attaching the chart for you all to review so you can all once again see how foreign Central Banks are dumping Fannie and Freddie debt in large amounts onto the market. Without the Fed monetizing that debt, there would be a significant drop off in the amount of funds for mortgages. I expect this week’s data to show no change in the liquidation of this agency debt which has now reached a total of $167 billion and is rising.

The Fed is going to need every bit of that $500 billion they are going to create out of thin air to acquire what the foreign Central Banks are unloading.

Best wishes from your pal,
Trader Dan

Click chart to enlarge today’s Agency Debt chart in PDF format with commentary from Trader Dan Norcini

AGency debt chart - Custodials.jpg

Posted at 7:22 PM (CST) by & filed under Guild Investment.

Dear CIGAs,

ECONOMIC OUTLOOK FOR 2009

The U.S. and most major economies will remain in recession in 2009.  If we are lucky, we will see an economic recovery starting in early 2010.  If we are unlucky and the banking system does not create more liquidity, we will not see an economic recovery until mid 2010…or later.  When the recovery arrives, it will probably be anemic and create little economic growth.  The big problem for the developed economies is that they are becoming more structurally inefficient.  We are not aware of any instances in the U.S. or Europe where government ownership of companies and industries has ever produced increases in productivity and efficiency.  It is not difficult to speculate that the current experiment will reduce productivity and efficiency.

Some of our predictions for the next few years:

1. Income taxes, use taxes, and fees of all types will rise.
2. Populist economic programs will be implemented.  These are well known to lead to slower long term growth in the developed world.
3. The gap between growth in the developed world and the developing world; China, India, and Brazil will expand.  The developed world will be less free market oriented, and more constrained by the after effects of the big bailouts.  We expect that developed world economic growth could remain at very low rates for years.  The well managed parts of the developing world will continue to grow more rapidly (Eastern Europe, and parts of Latin America are not included in the well managed group).
4. The need for U.S. and other major countries to finance their bail out programs will lead to massive issuance of government bonds, forcing the U.S. dollar down.
5. Most everyone is talking about deflation now, but inflation will be the big problem in a few years.
6. We expect U.S. Treasury bonds, which are currently popular with investors seeking safety and liquidity, will prove to have been a very poor investment.  We expect those who bought longer term bonds with low yields to be hurt when the bubble in Treasury bonds pops.

We are happy to say that many of our views are the opposite of the consensus, and that very few agree with us.  We are most comfortable when very few agree with our views.  For example, when we predicted in print years ago the bond and derivative problems would unwind poorly, very few agreed with our view. 

BEWARE OF ‘BUY AMERICA’ PROGRAMS AND OTHER ANTI FREE TRADE STUPIDITY

Does anyone have a history book?  Does anyone remember Smoot-Hawley? Does anyone realize that tariffs and other non free trade mechanisms made the Great Depression much worse than it would have been otherwise?  Do we wish for the world economy to survive and return to health?

If the answer to the above questions is yes, then we should dispense with this anti-free trade political talk immediately.  If the answer to the above is no, then may I propose that the politicians who are proposing non-free trade agendas have an economic death wish.  They are willing to let the U.S. economy die long term in order to garner votes from the ignorant in the short term.

HOW TO INVEST IN 2009

In our opinion, one should:

A. Buy things that benefit from a declining dollar as the big bond flotations will force the U.S. dollar down.  Some examples: Foreign currency denominated bonds, gold shares, and grain commodities. 

B. Buy other assets especially stocks, government guaranteed bonds, and income stocks when they get cheap.

2009 will provide discount prices for good assets in many parts of the world, it will not be easy.  We must avoid fear and resort to rationality.  When things get cheap enough, we will buy them.  By the way, from the market bottom in 1932 the Dow Jones Industrial Average rose about 450 % over the next 4+ years.  Most would agree 450% is a good return.  While we do not see that kind of opportunity right now, we may see some very good opportunities develop in coming months.

Thanks for listening

Monty Guild and Tony Danaher
www.GuildInvestment.com

Posted at 7:13 PM (CST) by & filed under General Editorial.

Dear CIGAs,

Here is the other "WHY" gold was sold down today.

The truth will set you free of the manipulators.

$25,000,000,000 of index commodity funds follow the index readjustments made herein.

Gold is REDUCED from 10.8 to 7.9 percent of the index which therein causes related selling by INDEX FUNDS.

Buying or selling by index funds is a yearly, onetime event. These adjustments are needless artificial buying and/or selling of specific commodities that skew market prices and produce opportunities both to buy and sell short.

You think reweighting is a product of a hands off process in today’s rotten to the core world? You probably also believe in Santa Clause.

Beware, commodity index rebalancing ahead
Posted by Izabella Kaminska on Jan 05 15:34.

The major commodity indices rebalance their respective asset weightings once a year (or occasionally more) — and with that comes a mass dose of buying and selling. The 2009 rebalancing is expected to start sometime this week.

Luckily, JP Morgan has produced its best guess of how the 2009 reweightings of the DJ AIGCI and the S&P GSCI indices will impact the market.

The weightings for both indices are released ahead of time, but begin to kick in the first few working days of the new year. In the case of the DJ-AIGCI — which JP Morgan estimates has $25bn in funds tracking it — the new weightings come into force during the roll period that begins January 9th. The S&P GSCI index weightings kick-in after its January roll which commences January 8th. JP Morgan estimates about $50 bn of investment into that index.

As the DJ weighting multipliers account for changes in US dollar-denominated values there is generally more potential for large changes there than in the GSCI, whose weightings are set in terms of ounces/tonnes (on the basis of liquidity and are weighted by their respective world production quantities).

Accordingly, JP Morgan see the most significant change coming in the DJ-AIGCI rebalance. Here the market weight of crude oil is expected to increase from 9.6 per cent to 13.8 per cent, gold from 10.8 per cent to 7.9 per cent, copper (COMEX) from 4.5 per cent to 7.3 per cent, live cattle from 6.4 per cent to 4.3 per cent and sugar from 4.7 per cent to 3.0 per cent. Meanwhile, S&P GSCI crude oil weight will go from 32 per cent to 33.8 per cent. Their analysis:

In financial terms, we expect the rebalancing to have the greatest impact in gold, COMEX copper, crude oil, gold, and live cattle. We estimate that the rebalancing of the two indices is expected to result in $877 million of selling in gold, $699 million of buying in COMEX copper, $528 million of selling in live cattle, and $523 million of buying in crude oil.

More…

Posted at 4:34 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

Monetization of market-less bankrupt debt with no guarantee of recovery in value is the ULTIMATE ACT OF INFLATION, in this case, the US dollar.

Axiom: To monetize debt is to inflate currency

Monetize

What Does Monetize Mean?

1. To convert into money.
2. To convert from securities into currency that can be used to purchase goods and services.

Investopedia explains Monetize…

For example, you’ll often hear Internet marketers talk about "monetizing website visitors." This is another way of saying that the marketers are trying to figure out a way of making money from website visitors, such as through advertising, ecommerce, etc.

http://www.investopedia.com/terms/m/monetize.asp?viewed=1

New York Fed Begins Purchases of Agency Mortgage Debt (Update1)
By Craig Torres

Jan. 5 (Bloomberg) — The Federal Reserve Bank of New York started buying mortgage-backed securities today as part of a $500 billion program to support the U.S. housing market.

The New York Fed “began purchasing fixed-rate mortgage- backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae,” the Fed bank said in a statement released by e- mail. “Selected private investment managers are acting as agents of the New York Fed in these purchases.”

The central bank didn’t disclose the amount of the purchases, saying such details will be available on the New York Fed’s website beginning Thursday, Jan. 8, and will be updated each Thursday.

The Fed chose BlackRock Inc., Goldman Sachs Asset Management, Pacific Investment Management Co. and Wellington Management Co. to manage the $500 billion purchase of mortgage- backed securities it plans to complete by June.

The collapse of U.S. mortgage finance last year led to the worst credit crisis in seven decades and triggered writedowns and losses at financial institutions exceeding $1 trillion.

The central bank has expanded credit by $1.3 trillion over the past year through programs extending liquidity to banks, bond dealers and other financial institutions. The Fed plans to create money to purchase the bonds, boosting bank reserves.

More…