Jim Sinclair’s Commentary

I understand the Chinese are considering the manufacturing of OTC derivatives, Securitized Investment Vehicles and Credit Default Swaps to fall under this part of felony with similar punishment.

Woman, 28, sentenced to death for defrauding investors
Xinhua, December 20, 2009

A businesswoman was sentenced to death in east China’s Zhejiang Province Friday for defrauding investors of 384 million yuan (US$56 million).

Wu Ying, 28, former owner of the Zhejiang-based Bense Holding Group, amassed the funds by promising high returns to investors between May 2005 and February 2007, according to the Intermediate People’s Court of Jinhua city.

The money was used for Wu’s personal consumption and in paying back the loans and operation costs of her company, said the court.

Born to a farmer’s family in Dongyang city, Zhejiang, Wu started from scratch by opening a beauty salon in 1997.

By 2006, she had become known around the nation for her Bense Group, which had interests ranging from hotels and department stores to Internet cafes, car sales, construction materials and dry-cleaning chains.

More…

Jim Sinclair’s Commentary

When you stimulate a sector other than an OTC derivative crushed financial industry, something actually happens.

China creates 10.13 mln jobs in urban areas in 1st 11 months
Xinhua, December 19, 2009

China generated 10.13 million new jobs in urban areas in the first eleven months, as government stepped up efforts to ensure adequate employment, according to the official data released on Friday.

The urban jobless rate would likely reach 4.3 percent by the end of this year and the total employed will surpass 11 million, Yin Weimin, Minister of Human Resources and Social Security told a national meeting on job promotion and social security work.

Also at the meeting, Vice Premier Zhang Dejiang urged authorities to maintain the continuity of the employment policy and make every efforts to secure jobs notably for college graduates and rural migrant workers.

He said the social insurance system should expand coverage, and the beneficiary should enjoy higher insurance income.

To help more than seven million college graduates land jobs, China has unveiled a slew of measures including offering them incentives to work in rural areas and in small firms, giving financial support for start-ups of their own business, and telling enterprises to provide internships for graduates.

Employment rate of college graduates reached 83 percent by the end of October as those measures showed effects.

More…

Jim Sinclair’s Commentary

The Saudi Military, having not experienced too much success, called in the big stick.

Obama Ordered U.S. Military Strike on Yemen Terrorists
Cruise Missiles Launched Thursday Hit Two Suspected al Qaeda Sites; Major Escalation of US Efforts Against Terrorists
By BRIAN ROSS, RICHARD ESPOSITO, MATTHEW COLE, LUIS MARTINEZ and KIRIT RADIA

On orders from President Barack Obama, the U.S. military launched cruise missiles early Thursday against two suspected al-Qaeda sites in Yemen, administration officials told ABC News in a report broadcast on ABC World News with Charles Gibson.

One of the targeted sites was a suspected al Qaeda training camp north of the capitol, Sanaa, and the second target was a location where officials said "an imminent attack against a U.S. asset was being planned."

The Yemen attacks by the U.S. military represent a major escalation of the Obama administration’s campaign against al Qaeda.

More…

Jim Sinclair’s Commentary

The problem is that this coup, properly understood, may well result in a vacuum. A vacuum in power can easily be filled by insurgents.

Pakistan in crisis as ‘creeping coup’ unfolds
SAEED SHAH, ISLAMABAD
December 20, 2009

THE political crisis in Pakistan has deepened after the Government’s anti-corruption agency sought a warrant for the arrest of the country’s Interior Minister.

Officials from the National Accountability Bureau asked for permission to arrest Rehman Malik, the minister in charge of law and order and the war on terrorism.

The move followed a supreme court ruling last week that overturned an amnesty introduced by General Pervez Musharraf, the former president, to enable the late former prime minister Benazir Bhutto and her senior aides to return from exile in 2007.

Under the deal, more than 8000 cases, including corruption, were dropped.

A number of other leaders of the ruling Pakistan Peoples Party (PPP) were also summoned to appear before the courts over long-standing corruption charges.

More…

Dear CIGAs,

Please help me get the message across. We have written much and spoken at various venues.

Still the media makes fun of gold investors and pumps out MOPE daily.

I financed the creation of an album of contemporary folk music that tells the story quite accurately. I am not looking for remuneration for this project, I simply want to share the work of a great artist with you.

I believe this album communicates a message that should be heard.

It would make a hard money and ethics gift for Christmas and the New Years.

It should be heard by those young and old that appreciates good music and proper monetary management.

From the artist, Bill Carleton’s, website, www.SqueezeThePeople.com:

Squeeze the People is the most sincere act of patriotism I can offer to my fellow neighbor. It is an album of Freedom Music of the People who are being squeezed to death by Fat Cat Wall Street banksters. Its purpose is to encourage alternative perspective and hopefully a greater sense of things. I invite you to listen. And please know that I am grateful for your time, because time is the most valuable commodity we have to share.

• - What cannot be felt in prose or oratory can perhaps be sensed in music.
• - Every major cause in history has had its music.
• - Soldier went to war based on the themes of why. – We are in a war few understand.
• - It is the survival of WESTERN CIVILIZATION, as we have understood it.
• - It is the survival of a BUSINESS PHILOSOPHY that gave opportunity to everyone.
• - It is the very survival of the rights to BELIEVE what you chose to believe.

Be sure to support this independent artist and share his excellent work with everyone who may enjoy it.

Follow the links at www.SqueezeThePeople.com to get your MP3 or hard copy CD version of the album.

Respectfully yours,

Jim Sinclair

Dear CIGAs,

For more reading on the Peanut Brittle Recovery, the following article in the Economist underscores the risk inherent in Pretend, Extend and Pray.

Click here to read the article…

Jim Sinclair’s Commentary

Here it is from the horse’s mouth. If you are bull on the US dollar you have got to love US Treasury bills, notes and bonds.

Harder to buy US Treasuries
Created: 2009-12-18 0:13:35
Author:Zhou Xin and Jason Subler

IT is getting harder for governments to buy United States Treasuries because the US’s shrinking current-account gap is reducing supply of dollars overseas, a Chinese central bank official said yesterday.

The comments by Zhu Min, deputy governor of the People’s Bank of China, referred to the overall situation globally, not specifically to China, the biggest foreign holder of US government bonds.

Chinese officials generally are very careful about commenting on the dollar and Treasuries, given that so much of its US$2.3 trillion reserves are tied to their value, and markets always watch any such comments closely for signs of any shift in how it manages its assets.

China’s State Administration of Foreign Exchange reaffirmed this month that the dollar stands secure as the anchor of the currency reserves it manages, even as the country seeks to diversify its investments.

In a discussion on the global role of the dollar, Zhu told an academic audience that it was inevitable that the dollar would continue to fall in value because Washington continued to issue more Treasuries to finance its deficit spending.

More…

Jim Sinclair’s Commentary

The UN gets it. F-TV still hasn’t a clue.

Now, gold coins from United Nations
December 19, 2009 18:40:00 IST

NEW YORK (Commodity Online): Now, the United Nations is also lured by the glitter of gold. In a bid to raise money for its projects, United Nations has licensed the minting of gold bullion coins bearing its logo to provide a public option world savings currency.

Oro gold coins are hoped to contribute to making the UN better funded by 2015, with revenue rising by ten to 15 per cent.

The coins are set to be produced in Europe and then distributed globally, with any licensee able to produce such bullion under contract.

There is a danger that if the US dollar weakens, there will be a strong move towards the Oro. In turn, this could potentially drive the value of the coin up to a level where international governments will not allow it to be circulated.

UN coins were previously made purely for commemoration in the 1970s, but they hold no monetary value

More…

Jim Sinclair’s Commentary

This weekend in Pakistan.

Who’s in charge of nuclear-armed U.S. ally Pakistan?
Pakistan bombings kill 40 as government fights for survival
BY SAEED SHAH

ISLAMABAD — Pakistan, a country that’s critical to the U.S.-led war on terrorism, Friday appeared to be sliding toward a judicial coup, in which judges are moving to oust top officials in the civilian government, but without putting the military, or anyone else, in charge.

Courts summoned dozens of senior members of the ruling political party and were on the verge of issuing an arrest warrant for Interior Minister Rehman Malik as they followed up a landmark Supreme Court decision this week that nullified a legal amnesty that had shielded politicians from long-standing corruption charges.

The U.S. relies on Pakistan for transit of most supplies NATO forces in Afghanistan and has pressed the government to crack down on al-Qaida and Afghan militants who have sanctuary in the lawless border region, but top U.S. officials are playing down the crisis as an internal matter for Pakistan.

Just who’s running this nuclear-armed country of 165 million – the independent judiciary or another arm of the state – is unclear. The government, led by President Asif Ali Zardari, appeared paralyzed, and a creeping change in command seemed to be under way.

"It’s complete (judicial) control now," said Asma Jahangir, the chair of the Human Rights Commission of Pakistan, an independent watchdog. "The issue is whether the (democratic) system is going to pack up again (and go away)." She asked why the judiciary was "again" letting itself be used by "the establishment?"

More…

Jim Sinclair’s Commentary

According to most recent Russian figures and statements, gold holdings continue to increase.

Russian Central Bank Gold holdings

The Central Bank of the Russian Federation updated their website a couple of days early this month. For November, they reported purchasing another 200,000 ounces of gold for their reserves, which now sits at 19.7 million troy ounces. The Russian Central Bank has also said that it would purchase an addition 32 tonnes [960,000 ounces] in December. This purchase won’t show up on their website until around January 20th.

More…

Jim Sinclair’s Commentary

A message from Europe on possible implications of Cap and Trade.

Fraud in Europe’s Cap and Trade System a ‘Red Flag,’ Critics Say
By Joshua Rhett Miller

The top cops in Europe say carbon-trading is an organized crime scheme that has robbed the continent of $7.4 billion — a massive fraud that lawmakers and energy experts say should send a "red flag" to the U.S., which approved cap-and-trade legislation over the summer amid stiff opposition.

In a statement released last week, the Europol police agency said Europe’s cap-and-trade system has been the victim of organized crime during the past 18 months, resulting in losses of roughly $7.4 billion. The agency, headquartered in the Netherlands, estimated that in some countries up to 90 percent of the entire market volume was caused by fraudulent activities.

"These criminal activities endanger the credibility of the European Union Emission Trading System and lead to the loss of significant tax revenue for governments," Rob Wainwright, Europol’s director, said in a statement.

Launched in 2005, the Emission Trading System seeks to reduce greenhouse gas emissions — which many scientists believe contribute to global warming — by allocating carbon pollution allowances to member states to fulfill its obligations under the U.N.’s Kyoto Protocol. Companies that emit less than their allowance can sell the difference on the trading market to firms that exceed their established limits.

More…

Dear Jim,

The FDIC closed seven more banks this week, making it 140 so far this year. This week’s closures cost the FDIC a total of about $1.8 billion.

For those keeping score, the FDIC was reported to have run out of assets as of approximately November 2009. It then came up with a plan to order banks to pre-pay three years’ worth of deposit insurance premiums – amounting to about $45 billion – in order to remain solvent. Since then, the FDIC has been hit with another $5.45 billion in projected costs.

Several observations about this week’s closings:

A Very Big Question Mark

The largest bank closed this week was First Federal Bank of California, based in Santa Monica, CA, which had 39 branches. According to the FDIC, First Federal had assets of about $6.1 billion and deposits of $4.5 billion.

The FDIC press release states it will cost an estimated $146.3 million to close First Federal. That suggests that First Federal’s assets were being carried at a value of at least $1.45 billion (32%) more than they were worth. This is consistent with the pattern seen across the board this year since the Financial Accounting Standards Board (“FASB”) caved into political pressure and suspended fair value accounting requirements.

On the other hand, the relative cost to the FDIC of closing this bank – 3.25% of the value of its deposits – is significantly lower than what has been seen in recent weeks. By way of comparison, the cost to the FDIC of closing the first three banks in this cycle (in late 2007) was about 5.7% of deposits; however, in the past couple of months the trend has been at least 25% of deposits on average.

The problem with this bit of good news is that it appears unbelievably over-optimistic given the structure of the deal. The FDIC had to enter into a loss-share agreement with respect to $5.3 billion of the assets purchased by the acquiring bank.

Manipulation Of Perspective Of Bank Closings

It seems very unrealistic for the FDIC to estimate its costs will be limited to $146 million when it shares the future downside risk on $5.3 billion worth of questionable assets. The whole reason parties enter into loss-share agreements is because there is serious concern the assets in question will decrease in value more than expected over time.

About ten days ago it was reported that the closing of Colonial Bankgroup, Inc., in mid-August 2009, was already being projected to cost the FDIC $5.6 billion, twice its original estimate of $2.8 billion, because of the FDIC’s exposure on a loss-share agreement in that transaction. This is strong evidence that the FDIC is making unrealistically low estimates of its exposure under these agreements when it makes its original loss projections.

In all likelihood this is Manipulation of Perspective Economics (“MOPE”) applied to bank closings. There is only so much bad news that U.S. government policymakers are likely to permit be released in any given period of time.

It stands to reason that as the frequency and size of bank closures increases, FDIC staff will be subjected to incredible pressure to under-estimate losses. It will be justified as being in the public’s interest, as revealing too much would only lead to unnecessary panic. A compliant press will be counted on to not dig deeper.

More Evidence of Worrisome Trends

Looking at the six banks other than First Federal closed this week, their total reported deposits were about $6.66 billion, and the FDIC’s cost of covering those deposits about 1.66 billion (25%). That number is consistent with the very high average loss rates seen in recent weeks.

Of these six failed banks, the largest three had combined assets of $7.3 billion and deposits of $5.7 billion, yet it cost the FDIC $1.39 billion to cover those deposits. That implies the assets were really only worth about $4.31 billion, approximately 59% of the value claimed. This is more evidence of false valuations brought about courtesy of the FASB and shortsighted politicians.

In these three cases the acquiring banks purchased a total of $6.4 billion of the failed banks’ assets and required the FDIC to enter into loss-share agreements with respect to $5.1 billion of these assets. This exposure may prove to be costly to the FDIC over time, as recent updates regarding the closure of Colonial Bankgroup, Inc., have made clear.

A Couple of Very Bad Apples

Two of the banks closed this week, Rockbridge Commercial Bank of Atlanta, Georgia (with reported assets of $294 million) and Citizens State Bank of New Baltimore, Michigan (with reported assets of $168.6 million), call attention to themselves due to their unprecedented loss rates. The FDIC’s estimated cost of closing Rockbridge amounts to about 42.6% of deposits, and Citizens State about 48.8% of deposits. These are not figures you expect to see in a system where banks are supposedly monitored and kept in check.

It should also be noted that in the case of these two banks and one other this week, the FDIC was unable to find another bank to take them over. The FDIC therefore became responsible for taking over these banks’ assets and managing them for eventual sale.

This brings to mind Jim’s recent observation in his December 9, 2009, General Editorial that “we do in fact [today] have a 90s type Resolution Trust, but it carries another name. This time the Resolution Trust is the Federal Deposit Insurance Company.”

Respectfully yours,
CIGA Richard B.

Dear CIGAs,

Sir George Kahama, father of Joseph Kahama, has been my personal friend from the first day I found myself in Tanzania. Joseph has written a book about his Dad that will be published soon. It gives me great pleasure to see recognized yet another of Sir George’s many accomplishments.

Jim Sinclair

Broadband To Bring Big Changes to Africa
October 5, 2009

Farmers using the Internet to connect directly with buyers? Doctors operating on patients remotely via telemedicine? This may sound like Silicon Valley, but it could soon be a reality in Africa, thanks to an undersea cable linking the continent to the rest of the world.

The 1.28 Terabyte-per-second submarine fiber optic cable reached the shores of Tanzania from India in July, providing the first high-speed connection between Africa and networks worldwide.

Deployed by operator SEACOM with help from Cisco — which also helped launch the service by building a voice, data and video platform to stream live video over IP to five launch locations — it is of profound significance to Internet connectivity in Africa.

Besides directly contributing to the availability of bandwidth across the continent, it will provide much-needed backhaul capacity for complementary access technologies such as 3rd Generation (3G) mobile and Very Small Aperture Terminal satellite currently in use.

Among those leading the initiative is the chairman of the board of directors of SEACOM Tanzania, George Kahama, popularly known as ‘Sir George.’

A major figure in the Tanzanian government between 1957 and 2005, Sir George held posts that included cabinet minister, ambassador and CEO of Public Commercial/Industrial Corporations. He is one of the main interlocutors between the cable provider and the public sector.

With the cable now entering its second phase of deployment, News@Cisco spoke to him about the project and its value for Africa.

More… http://newsroom.cisco.com/dlls/2009/ts_100509.html

Dear CIGAs,

In remarks yesterday I mentioned that we would be watching to see at what point gold would shrug off its deleveraging carry trade pressure and begin trading as a safe haven asset of its own. It appears that we might have reached that point based on what I am seeing in today’s price action.

The Dollar is higher, particularly against the Euro (pressure is still coming from the Greece story) but gold was able to ignore that and attract buying on its own merits. That is particularly impressive given the sizeable down day yesterday for the yellow metal. One day does not a trend make however so we will need to see how the market reacts to all of this come next week.

The buyers showed up around the $1100 level and put up enough pressure to force some of the weaker shorts to cover. It could well be that the physical market sees value down here and if so, the shorts are going to have their work cut out for them.

Bonds, the safe haven asset of choice yesterday, were lower today as the schizophrenic trading continues.

About the Dollar, it is still working higher on good volume so one could argue from a technical perspective that it has a ways to run to the upside yet but because this time of the year is so tricky on account of book squaring and year-end positioning, I am hesitant to be too dogmatic about its prospects. Money gets slung around in the pits this time of year in large quantities with seemingly no meaning at times. That can generate some pretty good volume but the number has to be taken with some skepticism merely because it is related to closing out of positions on both sides.

Fundamentally, there is no reason to buy the Dollar unless you really believe that the Fed is going to raise interest rates (something which I personally do not) because you are faced with the hard reality of an ever increasing supply of the same versus reduced demand ( I noticed yesterday that the New York Fed custodial accounts is worrisomely closing in on the $THREE TRILLION mark). That bodes for lower prices for the greenback as economic law tends to be axiomatic about that sort of thing. Technically it looks much better on the weekly chart with both the 10 week and 20 week moving averages turning upwards and price above both. I will have to see a weekly close above the downtrending 40 week moving average near the 79.50 level before I would become friendly towards it for the short term. Long term it is going lower, much lower.

Interesting enough, there were several commodity markets that were higher today even with the Dollar moving higher besides gold. Silver and copper were both up. Crude oil was up and even the soybean market moved higher. Cattle too were up so the carry trade unwind slowed down quite a bit in today’s session. Next week is going to be even more unpredictable as the pits thin out considerably.

I still have my eye on the lumber market and nothing I see in that tells me that anyone is expecting homebuilding to go GA-GA anytime soon. After shooting higher on index fund buying and managed money plays for what seemed like a “cheap” commodity, it has given up a large portion of those gains. Until lumber prices begin a bullish trend, the economy cannot be said to be improving. It may have bottomed out but that is a long way from saying it is going to enter a period of strong growth. It seems to me like that market is telling us that we are going to head sideways for some time. One thing is for sure – based on this market (lumber), there is not going to be any “V” shaped recovery. Looks to me more like the letter “L”, where the thing collapsed and then moved along a bottom for some time. We’ll see.

The gold shares have stabilized near the 420 level on the HUI and some of the daily technical indicators are at their respective oversold thresholds which will tend to reinforce any move higher that can punch through overhead resistance. Chart-wise that means the HUI needs to climb back above the 455 level to generate a buy signal.

I want to again reiterate what I wrote yesterday – Be careful about reading too much into market action at this time of the year. For many traders, 2009 is now a thing of the past as they head to the exits to take some time off before the New Year comes around. Frankly the thought of what awaits us in 2010 is very disturbing. What shoe will drop next is the fear that haunts me. How long can the little boy with the finger in the dike hold back the flood of consequences? I wish we had political leaders who were true statesmen, willing to sacrifice their own personal gain for the long term economic health and prosperity of our nation, but alas, those few that exist can only sound the alarm at this point and hope that enough of their fellow citizens will rally to their cause to demand the right policies for the sake of their children and grandchildren’s future.

Many of us who believe in honest money and thus are advocates of gold are contemptuously dismissed and sneered at by the elites as “gold bugs”. Contrary to the image that they have spun into existence, I do not want to see the Dollar collapse and head into decline. No nation can ever be great and prosperous with a weak currency. Find an example in history in which that has been the case and I will cede the point. The truth is however that we are faced with certain realities, the least of which is a ruling crowd who seems determined to follow the same policies and practices that have led to the inevitable decline of any nation or kingdom which has implement them. To ignore these facts or pretend as if they do not exist is not the fruit of wisdom. Wisdom goes hand in hand with prudence and the prudent man seeks out a refuge during a time of crisis. For many of us, that place of refuge is the “barbarous relic” from a bygone age – gold. When we get leaders who implement policies that are sound then we can leave our place of refuge. Until then, we wait and watch.

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

This Morning’s Observations:

Finding anyone in the financial world with a mindset of their own is almost impossible.

Now I know how the extinction of the dinosaurs occurred. A trend line broke and they were all declared dead.

All their supporters’ north end could be seen as last week supporters ran over the hill heading south.

Not to worry, they all will be back because you cannot make a silk pursue out of a dollar pig’s ear.

Thank god that Wall Street is not a country’s first line of defence.

Jim Sinclair’s Commentary

Forgotten truth. Maybe we need to stockpile this gold to stockpile that gold.

Jim Sinclair’s Commentary

Pretend and Extend is not going to work.

Washington has mistakenly identified Main Street with Wall Street under the impression that if you can bull Wall Street you can bull Main Street. This is where and when Management of Perspective Economics succeeds or fails.

Management of Perspective Economics is not a title that I made up, it is the school of economics now in power. It is the thesis behind the Federal Reserve and Treasury actions.

Nearly half of Detroit’s workers are unemployed
Analysis shows reported jobless rate understates extent of problem
Last Updated: December 16. 2009 1:42PM
Mike Wilkinson / The Detroit News

Despite an official unemployment rate of 27 percent, the real jobs problem in Detroit may be affecting half of the working-age population, thousands of whom either can’t find a job or are working fewer hours than they want.

Using a broader definition of unemployment, as much as 45 percent of the labor force has been affected by the downturn.

And that doesn’t include those who gave up the job search more than a year ago, a number that could exceed 100,000 potential workers alone.

"It’s a big number, and we should be concerned about it whether it’s one in two or something less than that," said George Fulton, a University of Michigan economist who helps craft economic forecasts for the state.

Mayor Dave Bing recently raised eyebrows when he said what many already suspected: that the city’s official unemployment rate was as believable as Santa Claus. In Washington for a jobs forum earlier this month, he estimated it was "closer to 50 percent."

More…

Jim Sinclair’s Commentary

The world is nuts, even ours.

You should hear the moaning and groaning coming out of gold investors who can never stand prosperity.

Can you imagine what gold at 4 figures means to low cost producers?

Gold miners eye gains as bullion stabilizes
Julie Crust and Jan Harvey – Analysis
Thu Dec 17, 2009 11:35am EST

LONDON (Reuters) – Investors in major gold producers may enjoy some long-overdue gains next year as companies hope to cash in on the precious metal’s ability to sustain historically high price levels.

Gold’s pullback from record highs above $1,225 an ounce this month is seen by some analysts as a key stage in its longer-term uptrend. Sustained price gains are likely to be supportive for miners in a way occasional forays to record highs have not been.

"Once prices stabilize, whether it’s at $1,000 or $1,100, you will find significant buying coming back to the gold equity market," said RBC Capital Markets analyst Leon Esterhuizen.

"I would expect people to buy the equities up to the gold price level at that time, because then you are basically gearing up for the next run."

General pricing levels for gold equities were at least $200-300 behind spot prices when the metal was trading around $1,200 an ounce in anticipation of a pullback, Esterhuizen said.

More…

Jim Sinclair’s Commentary

The dollar is the most fundamental of all markets.

Now that the techs have put on the short squeeze, let’s see what legs fundamental factors have to offer for the many so far voracious but oral bulls.

The Dark Gray Swan: No More Foreign Dollars With Which To Buy US Treasuries
Tyler Durden on 12/17/2009 21:31 -0500

Could the next black/green/dark gray swan be so obvious that it has avoided everyone? Well, except for the deputy governor of the Bank of China, who just gave the world a startling reminder of economics 101, when he said that it is "getting harder for governments to buy United States Treasuries because the US’s shrinking current-account gap is reducing the supply of dollars overseas." Oops.

The funny thing about natural (and economic) systems: they can only be pushed so far before they snap back to default state. With the entire world embarking on an unprecedented spree of domestic bubble blowing to mask the collapse in global GDP, everyone forgot to trade. Zero Hedge has long emphasized that the drop in world trade can only sustain for so long before it brings the current destabilized system back to some form of equilibrium. Because with every country intent on merely printing more of its own currency, whether it is to build bridges or to make the stock of electronic book fads trade at 100x earnings, said countries ran out of non-domestic cash. Alas, this is most critical for the United States, now that Treasury monetization is over, as the US needs to constantly find foreign buyers of its debt to fund unsustainable deficits. Foreign buyers who have US dollars. And according to Shanghai Daily, this could be a big, big problem.

Here is what the BOC’s Zhu Min said earlier:

"The United States cannot force foreign governments to increase their holdings of Treasuries," Zhu said, according to an audio recording of his remarks. "Double the holdings? It is definitely impossible."

More…

Jim Sinclair’s Commentary

Messing with opposing forces can be dangerous to the health of the world.

Pushing and shoving eventually leads to fighting, many times by mistake.

Consider for this moment if the future of the world sat, possibly, in the hands of two warrior pilots

NATO jets shadow Russian bombers over Arctic, Atlantic
20:2717/12/2009

Two Russian Tu-95MS Bear strategic bombers that carried out a routine patrol flight over the Arctic and Atlantic Oceans were shadowed by ‘regular’ NATO fighters, the Defense Ministry said on Thursday.

Spokesman Lt. Col. Vladimir Drik said the bombers spent over 12 hours in the air on Thursday and were shadowed by two NATO F-16 Fighting Falcon fighters.

A similar patrol mission on September 29 was shadowed by an F-22 Raptor that uses stealth technology, reportedly the first time the world’s only fifth-generation fighter aircraft was sent out to keep an eye on Russian planes.

Russian strategic bombers resumed patrol flights over the Pacific, Atlantic, and Arctic oceans in August 2007, following an order from then-president Vladimir Putin, and are usually shadowed by less sophisticated NATO aircraft.

All flights by Russian aircraft are performed in strict compliance with international law on the use of airspace over neutral waters, without intruding in the airspace of other states, the ministry said.

More…

Jim Sinclair’s Commentary

It seems like the Formula of 2006 is still alive and well.

The dollar market is the most fundamental of markets, so let’s see what legs it gets from these fundamentals.

GEAB N°40 is available! Spring 2010 – A new tipping point of the global systemic crisis: When the slip knot around public deficits is going to strangle Western states and their social security systems
- Public announcement GEAB N°40 (December 16, 2009) -

LEAP/E2020 believes that the global systemic crisis will experience a new tipping point from Spring 2010. Indeed, at that time, the public finances of the major Western countries are going to become unmanageable, as it will simultaneously become clear that new support measures for the economy are needed because of the failure of the various stimuli in 2009 (1), and that the size of budget deficits preclude any significant new expenditures.

If this public deficit « slip knot » which governments gladly placed around their necks in 2009, refusing to make the financial system pay for mistakes (2) is going to weigh heavily on all public expenditure, it is going to particularly affect the social security systems of the rich countries in always impoverishing the middle classes and the retired, and setting the poorest adrift (3).

At the same time, the general context of the bankruptcy of an increasing number of states and other authorities (regions, provinces, federal states) will entail a double paradoxical event of increasing interest rates and the flight out of currencies towards gold. In the absence of an organized alternative to a weakening US Dollar and in order to find an alternative to the loss in value of treasury bonds (in particular US ones) all central banks will have, in part, to « reconvert to gold », the old enemy of the US Federal Reserve, without being able to state the fact officially. The bet on recovery having been, at this point, totally lost by governments and central banks (4), this Spring 2010 tipping point is thus going to represent the beginning of the huge transfer of 20,000 billion USD of « ghost assets » (5) in the direction of the social security systems of the countries which have accumulated them.

More…

Jim Sinclair’s Commentary

The Iranians are masters at high stakes poker.

Iranian forces take over Iraq oil well
Fri Dec 18, 10:31 am ET

NASIRIYAH, Iraq (AFP) – Iranian forces took control of a southern Iraqi oil well on a disputed section of the border on Friday, US and Iraqi officials told AFP.

"There has been no violence related to this incident and we trust this will be resolved through peaceful diplomacy between the governments of Iraq and Iran," a US military spokesman told AFP at Contingency Operating Base Adder, just outside the southern Iraqi city of Nasiriyah.

"The oil field is in disputed territory in between Iranian and Iraqi border forts," he said, adding that such incidents occur quite frequently.

An official of the state-owned South Oil Co in the southeastern city of Amara, and west of the field, said: "An Iranian force arrived at the field early this morning (Friday).

"It took control of Well 4 and raised the Iranian flag even though the well lies in Iraqi territory," the official added.

More…

Jim Sinclair’s Commentary

This would SHOCK the Wise Guys.

"Fast Eddie" is going straight when he gets out, and starting a new credit card company. "Big Louie" will handle accounts receivable. "Tommy One Nut" will handle the complaints department.

Guess what Wall Street firms they will hire as Conselori?

Credit card’s newest trick: 79.9 percent interest
Posted on December 18, 2009 at 11:00 AM

It’s no mistake. This credit card’s interest rate is 79.9 percent.

The bloated APR is how First Premier Bank, a subprime credit card issuer, is skirting new regulations intended to curb abusive practices in the industry. It’s a strategy other subprime card issuers could start adopting to get around the new rules.

Typically, the First Premier card comes with a minimum of $256 in fees in the first year for a credit line of $250. Starting in February, however, a new law will cap such fees at 25 percent of a card’s credit line.

In a recent mailing for a preapproved card, First Premier lowers fees to just that limit — $75 in the first year for a credit line of $300. But the new law doesn’t set a cap on interest rates. Hence the 79.9 APR, up from the previous 9.9 percent.

"It’s the highest on the market. It’s the highest we’ve ever seen," said Anuj Shahani, an analyst with Synovate, a research firm that tracks credit card mailings.

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Dear Jim,

Indeed, all paper IS junk. As you are all too well aware, a simple look at the charts over the past few years shows that Gold is charging against every currency. The race to the bottom perpetuates all sorts of head fakes along the way. None of them impinge upon the simple fact that Gold is shaking them all out.

So the dollar rebounds a bit versus some other trash? – who cares? Everything, as far as I can see (fx/oil/agro/bonds) is falling versus Gold. To me, the central factor we are witnessing is a monetary phenomenon (not an oil shortage/a food shortage/a base metals shortage). Everything else is a reaction to that… which is why Gold keeps shining through.

Regards,
CIGA Pedro

Jim,

The time for an intermediate top in December is all wrong.

CIGA Eric

Click chart to enlarge

Jim,

Inflation expectations, as measured by the spread between TIP and nominal bonds, have been rising steadily since March 2009.

CIGA Eric

Click chart to enlarge

Dear Jim,

Regarding the price of gold:

You’re not completely alone. The time for an intermediate top is all wrong. As you know, that matters more than price.

CIGA Eric

Sad news from Kansas:

Is 70 years old.

Today, if Dorothy were to encounter people with no redeeming human qualities, no brains, no hearts, and no courage – she wouldn’t be in Oz…

She’d be in on Wall Street

Dear Jim,

This recent movement in gold is nothing but noise. I can’t believe how people get upset at this. I applaud you for your patience. The confidence I maintain in your target of $1650 is unwavering. It is a matter of time that gets shorter by the day. It is sad what you have given to people goes in one ear and out the other. Would you concur that nothing has gotten worse for gold fundamentally but that its bullish case gets stronger by the day as the Formula takes hold and government is helpless to stop it?

Best,
CIGA Bt

Dear BT,

The popular delusion and madness of the crowd has driven markets forever.

Two weeks ago you could hardly find a gold bear.

Gold traded at $1224.10 in the cash market. Central banks on both sides were shocked.

Those that wanted to buy felt lost, and those that wanted to print more paper felt challenged.

MOPE came in from all corners.

China, talking their market interest yelled, "Gold Bubble."

The classic MOPE was an article stating that since central banks had been buying gold, it has to be the top. That takes the cake in terms of whimsical imagination without historical precedent.

From a man that has seen what a gold top looks like, this is not it.

All of a sudden the black hats were chasing the gold hats. You should know how many times in the 70s, I watched as even the nearest and dearest went into totally disorganized retreat mode. I yelled charge, and looked behind me to see no one whatsoever.

It can get damn lonely out here. However, those that are right rarely have company.

How many times have we seen this in the gold market? What has it meant so far? It means nothing more now.

Gold is going through $1224 and $1278 on its way to $1650, which will occur on or before January 14th, 2011.

Armstrong disagrees, as he sees $5000 by June of 2011.

Alf’s prices are without time estimates.

Regards,
Jim

Dear CIGAs,

This morning when the opposing members of the Chairman of the Federal Reserve confirmation committee were speaking, their faces were shown with lips moving but no sound. There were over-spoken by the F-TV so the net result is you did not hear one word.

Well that should go some distance to tell you the smoke and mirrors that underlies the dollar rally that money managers and F-TV have talked themselves into. Once the gossip gang had decided that the unknowable Carry Trade had become as the professor said, the Mother of All Carry Trades, luncheon discussions turned to when and how high the New Year’s rally in the US dollar is going be.

The euro has been talked down from the $1.52 level by those that had established very large shorts in the same manner that we are all used to. The employment figures changed a statistically insignificant amount and the MOPE machine went to work.

Gold of course came down inversely to the stronger dollar.

The question now that the USDX has appreciated above the .77 level is what fundamental legs are left after the weak hands are ejected? You need to know that FOREX houses have come on to that focus on Gamma’s account at 500 to 1 leverage.

The rub in the conclusion that there are little to modest legs in this short squeeze is because the Fed is dedicated to maintaining low short terms rates as they definitely understand the Peanut Brittle recovery. The highly professional and well financed money managers will not abandon the utilization of the dollar as a carry currency, having once again gotten the Fed’s green light.

Fundamentally 10% unemployment would delight the markets, but what a hell of weak basis upon which to anticipate any major recovery in a consumer driven Western economy.

If you can stand the heat in the gold kitchen it will protect you from the madness of monetary mismanagement, rulership of the banksters and capitulation of FASB. The alternative is to buy the dollar and get a spiritual experience without the need for a guru in the not too distant future.

Jim Sinclair’s Commentary

Do not trust this cat!

Jim Sinclair’s Commentary

This is a two edged sword as it benefits both the bank’s earning statement as well as the deposed victim of the economic debacle.

Citigroup To Suspend Foreclosures For 30 Days

WASHINGTON (AP) — Citigroup will suspend foreclosures and evictions for 30 days. It’s a temporary break for about 4,000 borrowers during the holiday season.

The New York-based bank will halt foreclosure sales and stop evicting homeowners from properties it has already seized. The company projects it will help 2,000 homeowners with scheduled foreclosure sales and another 2,000 that were due to receive foreclosure notices.

The suspension will run from Friday through Jan. 17. It applies only to borrowers whose loans are owned by Citi. Borrowers who make payments to Citi but whose loans are owned by other investors are out of luck.

The head of Citi’s mortgage division says the company is working on "some long-term fundamental alternatives" to foreclosure, but has declined to be specific.

Meanwhile, the Treasury Department has backed out of plans to sell its 34 percent stake in Citigroup at this time.

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Jim Sinclair’s Commentary

The Chinese talk their position. Two weeks ago Gold was a bubble according to Chinese comment.

Now as it gets within range of their purchase price the dollar rally is bullshit. So stinking is the dollar rally that they will have to curtail their purchases of Treasury instruments.

I have to agree with the second which is the dollar rally is bullshit and argue vehemently against the first as bubbles are not advertised as bubbles because if they are they are not bubbles.

Watch the Chinese take the rest of the IMF gold if they do not get front run again.

Chinese Central Banker Zhu Says Dollar Set to Weaken 
By Bloomberg News

Dec. 17 (Bloomberg) — Chinese central banker Zhu Min said that the dollar is set to weaken further and it will become more difficult for nations to buy U.S. Treasuries.

“When the U.S. has to fund its deficit through the combination of issuing more Treasuries and printing more dollars, it is inevitable that the dollar will continue to weaken,” Deputy Governor Zhu said at a forum in Beijing today.

China, the biggest foreign holder of Treasuries with $798.9 billion of the securities, expressed concern this year at the safety of its dollar assets and central bank Governor Zhou Xiaochuan called for moves toward an alternative global currency. Zhu’s comments, which he said were a personal view, focused on the twin U.S. deficits, fiscal and current account.

The U.S. can’t expect other nations to increase purchases of Treasuries to fund its entire fiscal shortfall, said Zhu, a former vice president of Bank of China Ltd. Efforts by the U.S. to cut its current-account deficit mean other nations accumulate fewer dollars through trade, leaving them with less money to buy Treasuries, he added.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against those of the U.S.’s biggest trading partners, has declined 4.4 percent this year. The currency climbed today to the highest level in three months against the euro after Standard & Poor’s downgraded Greece’s debt rating yesterday.

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Jim Sinclair’s Commentary

Here is the green light for the carry trade.

Do you really believe these professionals are just sitting long?

Not the successful ones. Tell it to the professor.

More upbeat Fed keeps lid on rates.
As expected, the Fed kept its overnight target at 0-0.25% and pledged to keep rates low for "an extended period," but expressed growing optimism on the U.S. economy as job losses slow and housing markets improve. "Economic activity has continued to pick up," the Fed said. "Deterioration in the labor market is abating." Underscoring confidence in credit markets, the Fed stood by plans to shutter most of its emergency lending facilities on Feb. 1. After the Fed’s decision, traders pared bets on a rate hike: just 48% expect a quarter-point raise by mid-2010, down from 58% before the statement.

Jim Sinclair’s Commentary

When have you ever seen the US Treasury mis-time a common share sale? That has to be a tad embarrassing.

When you have political rhino skin nothing transmits.

Citi’s embarrassing share sale.
Citigroup (C)confirmed late Wednesday it priced a massive 5.4B share sale at $3.15, generating net proceeds of $17B. The Treasury, which was slated to sell $5B in stock concurrently, shelved its plans after pricing was lower than the $3.25/share it paid, extended the lock-up period on its 7.7B share stake to 90 days from 45, and said it expects to exit its stake over the coming 12 months. Analysts said the disappointing showing casts doubt on the wisdom of Citi’s rush to exit TARP; Dick Bove called it "a terrible deal for shareholders," and said it proves the interests of Citi’s management team (removing pay restrictions) are not aligned with those of shareholders. Shares –8.1% to $3.17 premarket.

Jim Sinclair’s Commentary

All is well in the Middle East

US to drill Iranian attack scenario
By JPOST.COM STAFF

A top Pentagon official said Monday that a US missile defense drill would simulate an Iranian attack – a departure from the usual scenario of a North Korean attack – according to Reuters.

"Previously, we have been testing the [Ground-Based Midcourse Defense] GMD system against a North Korean-type scenario. This next test… is more of a head-on shot like you would use defending against an Iranian shot into the United States. So that’s the first time that we’re now testing in a different scenario," Lt.-Gen. Patrick O’Reilly, head of the US Missile Defense Agency, said at the Reuters Aerospace and Defense Summit in Washington.

According to O’Reilly, an Iranian attack would be more challenging than a North Korean attack because a missile fired from Iran would reach the US "more head-on than from the side," and therefore relatively faster.

The test, scheduled for January, is expected to cost about $150 million. During the maneuver the US will fire an interceptor missile from Vandenberg Air Force Base in California at a mock-Iranian missile which would be fired from the Marshall Islands in the Pacific Ocean.

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