Jim,

April 2007 and 2008 is not an apples-to-apples comparison due to currency depreciation. When the Federal budget is referenced to GDP, the series becomes unbiased. Thus, we can study the trends.

The trends, my friends, are not good. The “Formula” and “Leading Formula,” federal budget surplus/ (deficit) and taxes withheld continue to deteriorate, respectively.  The countertrend PUTs of the “Formula” have failed. Furthermore, the consolidation pattern of the counter trend rally of the “Leading Formula” is beginning to falter. This all increases the probability that another down leg in the federal budget has resumed.

If the recession has just begun then so have the federal budget trends.

Also, keep an eye on the worsening solvency of the US banking system.

CIGA Eric

 

Click here for today’s charts from CIGA Eric

 

Federal Budget Deficit Nearly Twice What it Was a Year Ago
Monday , May 12, 2008

WASHINGTON - The federal government ran a budget surplus of $159.3 billion in April, smaller than a year ago.

The Treasury Department reported Monday that the budget surplus for April was 10.4 percent lower than in April 2007.

The government traditionally runs a surplus in April, the month that tax returns are due. However, the weak economy has been dampening growth in revenues this year.

More…

 

JPMorgan Chase CEO: Recession is just beginning
Monday May 12, 4:41 pm ET

JPMorgan CEO James Dimon says recession is just starting, even if market crisis is mostly over

NEW YORK (AP) -- JPMorgan Chase & Co.'s chief executive said Monday that while the crisis in the credit markets appears to be three-quarters over, he believes a U.S. recession is just beginning.

"Even if the capital markets crisis resolves, it does not mean that this country will not go into a bad recession," said CEO James Dimon, whose bank saw its first-quarter profit fall by half due to the recent collapse of the U.S. mortgage market. "The recession just started."

More…

 

 

Dear Jim,

I attended an Asset Management Industry Roundtable in London last week which had participation from renowned thought leaders, senior decision makers, and practitioners from the global asset management industry. I also had a chance to interact with various investment advisors about the economic and financial forecast which lies ahead as a “perfect storm” is brewing. De-leveraging is a key mantra and focus is on increasing value of assets under management and increasing return on investment. Derivatives (credit derivative and OTC) are very much present and prevalent and will have an impact on risk profiles of most investment management firms. An increasing trend for making investments into Europe, Asia, and Middle East is foreseen compared to U.S. as the U.S. dollar is likely to decline further. There is also a growing trend for portfolio diversification and to hedge investment risk by targeting investments with sound balance sheets which are not overleveraged.

CIGA Pat Sonti

 

 

Jim,

You will find bellow an excellent article about why oil prices are more driven by fundamentals than by speculators. The article is from economist Paul Krugman of the New York Times.

Regards,
CIGA Christopher

The Oil Nonbubble
By PAUL KRUGMAN
Published: May 12, 2008

“The Oil Bubble: Set to Burst?” That was the headline of an October 2004 article in National Review, which argued that oil prices, then $50 a barrel, would soon collapse.

Ten months later, oil was selling for $70 a barrel.

“It’s a huge bubble,” declared Steve Forbes, the publisher, who warned that the coming crash in oil prices would make the popping of the technology bubble “look like a picnic.”

All through oil’s five-year price surge, which has taken it from $25 a barrel to last week’s close above $125, there have been many voices declaring that it’s all a bubble, unsupported by the fundamentals of supply and demand.

So here are two questions: Are speculators mainly, or even largely, responsible for high oil prices? And if they aren’t, why have so many commentators insisted, year after year, that there’s an oil bubble?

Now, speculators do sometimes push commodity prices far above the level justified by fundamentals. But when that happens, there are telltale signs that just aren’t there in today’s oil market.

Imagine what would happen if the oil market were humming along, with supply and demand balanced at a price of $25 a barrel, and a bunch of speculators came in and drove the price up to $100.

More…

 

 

Dear CIGAs,

This problem is far from over. The derivative situation is omnipotent and omnipresent.

Shipbuilding Torpedoed by Subprime Causes Cost Surge
By Todd Zeranski

May 12 (Bloomberg) -- The biggest shipbuilding boom in history collided with the largest credit-market losses ever, undermining forecasts for a plunge in freight rates.

As much as $14 billion in ship orders is threatened by cancellations and delays, equal to 94 percent of annual revenue at Hyundai Heavy Industries Co., the largest shipbuilder. Tightening credit markets mean lenders demand a bigger deposit and shorter terms for financing, said Tobias Backer, the head of shipping for the Americas at Fortis, a merchant banker.

The loss or delay in deliveries of about 250 cargo ships, or 10 percent of orders, will tighten the supply of vessels and support rates when demand from China and India for everything from soybeans to coal has never been greater. Based on the current orders for 2,561 new cargo ships, shipping rates are expected to decline 56 percent during the next three years, futures markets show.

``Cancellations would certainly be bullish for rates because the ships won't be there,'' Natasha Boyden, an analyst at Cantor Fitzgerald in New York, said.

More…

 

 

Jim Sinclair’s Commentary

All is well according to Financial TV. Not here.

Report: About half of Cleveland's subprime loans ended in foreclosure
May 11, 2008 10:15 EDT

CLEVELAND (AP) -- The Cleveland Plain dealer is reporting that about half of the city's subprime mortgage loans written by top lenders in 2005 ended in foreclosure filings.

Subprime mortgage loans are generally given to people with poor credit and come with higher fees and interest rates.

Now Cleveland is dealing with one of the highest foreclosure rates in the nation.

The Plain Dealer says all five of the city's top lenders in 2005 have since been absorbed by other companies or have gone out of business, and there is no accurate way to determine what percentage of subprime mortgage loans may have been based on fraudulent or unscrupulous lending practices.

More…

 

 

Jim Sinclair’s Commentary

The US Federal Budget deficit will grow to $1 trillion dollars very soon. This is a dollar sinker.
The dots are connected by the Formula. Click here to review the Formula.

The global slump of 2008-09 has begun as poison spreads
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 6:44am BST 12/05/2008

The avalanche of bankruptcies has begun. Six US companies of substance have defaulted on bonds over the past fortnight, against 17 for the whole of last year.

As a "non-believer" in the instant rebound story, I am not easily shocked by gloomy reports. But the latest note by Standard & Poor's –

The Bust After The Boom - gave me a fright.

The sick list is varied, though most for now are victims of the housing crash: Linens 'n Things, ($650m), Kimball Hill ($703m), Home Interiors ($310m), French Lick Resorts ($142m), Recycled Paper Greetings ($187m), and Tropicana Entertainment ($2.49bn).

As the Fed's latest loan survey makes clear, lenders have dropped the guillotine. With the usual delay, the poison is spreading from banks to the real world.

More…

 

 

Jim Sinclair’s Commentary

This remains the most serious of world flashpoints.

Anti-Americanism in Pakistan
May 11th, 2008
Posted by: Sanjeev Miglani

U.S. ambassador Anne W. Patterson, in a speech reported by the Pakistan press, said last week that the depth of anti-Americanism in Pakistan, especially among the middle-class, had surprised her. Pakistan’s long-term interests were aligned with those of the United States, and those opposing U.S. engagement in the country had a limited understanding of  how the partnership based on economic assistance had changed the lives of Pakistanis, she told a meeting in Karachi. For added measure, she said that the “ïncreasingly prosperous middle class” would be the first to suffer if  hardliners gained ground.

She needn’t have looked further than to events last  week to see why America sits rather uneasily on the Pakistani mind, a heavy hand of friendship that Pakistanis are increasingly chafing against.

The New York Times reported that the Pentagon had cancelled the appointment of Maj. Gen. Jay W. Hood as the senior American officer based in Pakistan following weeks of criticism in the Pakistani news media over one of his previous jobs : commander of the U.S.  prison at Guantanamo Bay.

More…

 

 

Jim Sinclair’s Commentary

This problem can easily propel gold to $1650 and the world into real trouble not yet even imagined.

Pakistan ruling coalition close to collapse

The chances of Pakistan’s largest coalition partners, the Pakistan Peoples’ Party (PPP) and the Pakistan Muslim League (Nawaz) (PML-N) parting ways grew more pronounced on Sunday, as talks between their senior leaders failed to reach any consensus on the thorny issue of whether the judges who had been removed by President Pervez Musharraf should be reinstated or not.

Even the intervention of US Secretary of State Richard Boucher failed to break the impasse.
The deadline for restoring the judges to their former position is May 12.

PPP co-chairman Asif Ali Zardari claimed that both parties agreed that the judges should be reinstated; the differences only related to the procedure to be adopted while doing so. In an interview to a news channel he added that while there was “an element of weakness” in the ruling coalition, it would not fall apart since no one wanted another election soon.

More…

 

 

Jim Sinclair’s Commentary

Here is a serious subject presented lightly. Its contents are sound and educational concerning our present challenges.

Note that standards are the key to establishing a market and therefore OTC derivatives will never trade on an exchange, ever.

May cause insomnia

I don’t know whether to lie awake at night worrying about over-the-counter (OTC) derivatives or not, so I lie awake at night worrying about whether to lie awake and worry.

I should just buy a worry default swap and go back to sleep. But what happens if the counter party can’t pay? Who IS the counter party? And how many trillions of worry default swaps are out there, ready to collapse like an Egyptian block of flats and turn my dreams to nightmares?

The Bank of International Settlements says there are $US681 trillion worth of over-the-counter derivatives in the world, which sounds like rather a lot. Is that more than there are stars in the sky and grains of sand on the beach?

In any case, what does it mean? Should I worry about that number, or is it like saying there were 59.6 billion cappuccinos produced in the world last year. Is that concerning or not?

Last month the Financial Stability Forum (FSF), which was set up in 1999 as an inter-government body to promote international financial stability, solemnly presented a paper to the G7 in which it recommended, among other things, reform of the OTC markets.

More…

 

 

Jim Sinclair’s Commentary

Up and up the losses go and where they end, nobody knows

HSBC sub-prime losses hit $15bn
Monday 12th May 2008: 10:00
By IFAonline.co.uk

UK banking giant HSBC has been hit with a $3.2bn write-down in Q1 this year, taking its total US sub-prime related losses to over $15bn.

Europe’s largest bank is now fourth on the list of credit losses, behind the beleaguered Citigroup, UBS and Merrill Lynch.

HSBC has also had to make an additional $2.7bn write-down in its Global Banking and Markets arm.

However, HSBC says its profit was ahead of the equivalent period last year despite the turmoil in credit markets.

"Our performance so far in 2008 demonstrates that HSBC's business resilience in difficult financial markets, our global distribution network, diversified earnings streams and strong capital position are allowing us to support our customers in today's challenging market conditions,” group chairman Stephen Green says.

More…

 

Hard numbers: The economy is worse than you know
By Kevin Phillips, Harper's Magazine
In print: Sunday, April 27, 2008

Under John Kennedy, out-of-work Americans who had stopped looking for jobs — even if this was because none could be found — were labeled "discouraged workers" and then excluded from the ranks of the unemployed.

Lyndon Johnson orchestrated a "unified budget" that combined Social Security with the rest of the federal outlays. This innovation allowed the surplus receipts in Social Security to mask the emerging federal deficit.

Richard Nixon created a division between "core" inflation and headline inflation. If the Consumer Price Index was calculated by tracking a bundle of prices, so-called core inflation would simply exclude, because of "volatility," categories that happened to be troublesome (and thus in the "headlines"). At that time, it was food and energy (as it is now).

Under Ronald Reagan, the Bureau of Labor Statistics decided that housing was overstating the Consumer Price Index and substituted an entirely different "Owner Equivalent Rent" measurement, based on what a homeowner might get for renting his house. This methodology, controversial at the time but still used, sidestepped what was happening in the real world of homeowner costs. Some say that led to the mortgage crisis today.

Under the first President Bush, officials moved to reorient U.S. economic statistical measure away from old industrial-era methodologies toward the emerging services economy and the expanding retail and financial sectors. Skeptics said the underlying goal was to reduce the inflation rate in order to reduce federal payments — from interest on the national debt to cost-of-living outlays for government employees, retirees and Social Security recipients.

Under President Clinton, the convoluted CPI changes proposed under Bush were implemented. And the Clintonites tinkered with the unemployment number, in part, by changing its housing economic sampling, disproportionately eliminating inner city households. That is believed to have reduced black unemployment estimates and eased worsening poverty figures.

More…

 

 

Jim Sinclair's Commentary

MBIA, after a significant quarterly loss, announced today that it has ample reserves to meet its requirement for bond guarantees.

My question is how does a financial insurance company know exactly or even roughly what their obligations will be for the year?

Despite not being able to make these predictions, this company is leading the financials higher today.

Regards,
Jim

 

 

Jim Sinclair’s Commentary

Mother Nature seems quite angry with us, having sent droughts, monster floods, earthquakes and volcanic action in degrees rarely witnessed.

Now we add Chile to the Republic of South Africa on electrical problems.

Chilean Drought, Power Shortages Drive Up World Metal Prices
By Saijel Kishan and Gavin Evans
Bloomberg News
Sunday, May 11, 2008; Page F04

Chile's worst drought in five decades and power rationing from South Africa to China mean the price of aluminum, gold, copper and platinum will keep climbing as the lights go out in the world's biggest mines

Those governments are being forced to choose whether to reduce power to their 1.4 billion residents or curtail energy supplies to the largest copper, aluminum, platinum and gold factories. The energy used by China's aluminum smelters each week could provide enough power for more than 2 million people for an entire year.

Runaway growth in emerging markets is squeezing world oil supplies and has led to electricity shortages, cutting output of commodities needed to meet ever-rising demand. Platinum jumped to a record in January after mines in South Africa closed for five days because utilities were rationing power. Cobalt rose 58 percent in the 12 months ended May 2 as production growth in Congo was limited by electricity supply.

"There will be a sustained level of risk from power shortages in the commodities markets," said Michael Lewis, London-based global head of commodities research at Deutsche Bank. "We are pricing bigger supply losses as a result."

Metals are headed for a seventh straight year of price increases even as the worst U.S. housing slump reduced consumption in the world's biggest economy.

More…

 

 

Jim Sinclair’s Commentary

Read the prospectus. You might be satisfied, you might not. Leveraged funds can use OTC derivatives with a whopping 2 to 1 leverage.

The Case Against Leveraged ETFs

Tristan Yates and Lye Kok (IndexRoll) submit: The Leveraged ETF offensive is under way. A year ago, there were no leveraged ETFs in existence. Today, there are at least fifty leveraged ETF products in the marketplace and another fifty in the SEC/AMEX pipeline. By this time next year, perhaps every traded ETF will have a 2x leveraged counterpart. Are these leveraged ETFs suitable for retail investors? No, they are not.

In this article, we lay out the case against these products, based upon popular misconceptions of what exactly these ETFs provide, a hidden trap related to leverage, and the poor performance of related funds and of the ETFs themselves.

Note that this article updates a SeekingAlpha article posted about six weeks ago, and we�d like to thank the many readers who were kind enough to provide us with additional research and commentary.

The Daily Double

Leveraged ETFs are exchange-traded funds that are based upon well-known indexes, but that provide investors with additional leverage by using borrowed money. Their goal is to increase the return of the underlying index and provide a better return for the fund’s investors. Typically they provide $1 of debt for every $1 of investor equity, and are marketed as 2X funds.

More…

 

 

Dear CIGAs,

THE COMMODITIES CYCLE HAS A LONG WAY TO RUN

As I sit to write this memo, I would like to share one simple thought. This is a period of rising inflation, and rising commodity demand and we must keep our eye on the ball.  There will be times when the press and the public loudly proclaim that the commodities cycle is over-done.

We have been hearing this over and over for 6 years. All the while, we have been bullish on energy and precious metals.  We have been bullish on base metals for the past 4 years and for the past 2 years we have been bullish on foods and food related investments.

We will continue to hear this drumbeat, we must realize that many people believe that commodities must revert to the mean, and since prior to the last few years such reversions took place every few years, many people were expecting commodities to flame out long ago.

 

THE POINT THAT MANY INVESTORS HAVE BEEN MISSING

The point that naysayer's miss on the commodity cycle is that the forces driving commodities are not the typical cyclical forces. They are secular...... once in a century [or longer] forces which will not easily be eliminated.  India, China, Brazil, Vietnam, and many other countries are growing because there is a realization by politicians everywhere that they must provide a better, wealthier, and happier life for their constituents or be tossed out. The former Soviet Union proved this and other leaders took heed. Countries decided to grow and include more of their citizens in a better life. The current surge in the prices of commodities is one of the results.

 

THIS DOES NOT MEAN THAT COMMODITY PRICES CANNOT FALL IN THE SHORT RUN...... BUT OVER THE NEXT FEW YEARS THEY WILL RISE MUCH HIGHER

There will be normal corrections in price for all of the above mentioned areas. Just remember that we remain in a long term period of high and rising demand and there is no reason for the demand to dissipate.

 

WE CONTINUE TO INVEST IN THE SAME THEMES...... WE HOPE YOU KNOW THEM BY NOW:

• ENERGY
• PRECIOUS METALS
• FOOD
• BASE METALS
• FAST GROWING COUNTRIES
• NON - US CURRENCIES (Especially the Chinese Yuan)
  [For more specifics see our archives at www.guildinvestment.com]

 

THE NEW ORDER...... A MULTI-POLAR WORLD......COMING SOON TO A WORLD NEAR YOU

One of our jobs is to look ahead.  We saw the current rise in inflation and the current demand for commodities years ago, because part of our focus is looking at how the world will be in coming years. Currently, we have a uni-polar world where the U.S. has been the dominant political and economic power.

This period is ending, and we believe the next world order will be a multi-polar world where many countries, maybe 12 to 14, will have power in regional or global issues. In addition, states within countries, like California or Uttar Pradesh will have power, non national groups like foundations , non profit organizations, and multinational organizations [like the Arab league, the African Union, the South Asian Association for Regional Cooperation the Shanghai Cooperation Organization, OPEC, The World Health Organization, the United Nations, NATO, the EU, The Organization of American States].  We might see alliances between differing parties on different issues and opposition by non-traditional allies in other areas.  In other words, a much more complex, confusing, and hard to dominate world with declining U.S. power and declining European power.

 

WHY WOULD I SAY THAT THE U.S. AND EUROPE ARE DECLINING?

It's easy, economic power brings political power and the decline of first European and now U.S. economic power first brought a decline in Europe's power, and now we are seeing a decline in U.S. power.  The U.S. is spending beyond its means, it is borrowing from others to do so and this cannot last. When it ends, U.S. political power will end, just like the political power of all of the over spending and over ambitious groups before it.

In short, the U.S. is making the same traditional mistakes that have been made by numerous empires throughout recorded history.

Most thinkers believe that the U.S. centric world is in its final decades, and we agree.

 

THE BIG QUESTION

To us the question is how do we invest to take advantage of the inevitable change?

We continue to evaluate the situation and we will discuss it more in the coming notes. Our first suggestion is to stick with the investment themes that we have outlined and buy on dips.

Thanks for listening.

Monty Guild and Tony Danaher
www.GuildInvestment.com

Click here for disclaimer information and to visit Monty Guild’s website

 

 

Dear Friends,

The expansion of the US Federal Budget Deficit is a key economic fact that is hidden in plain view.

The lack of discussion about the US Federal Deficit growth persists. The expansion to a predictable $700 billion deficit according to the last quarterly report has seemingly gone right over the grasp of the talking heads.

My feeling is a growth indicating a 12 month US Federal Budget deficit of $1 trillion is probable as we move into the second half of 2008 because general business activity has scant potential for reversing upward while expenditures in an election year have very little chance of being constrained within the limits of fiscal sanity.
 

Federal Budget Deficit Swells to $263.3B

WASHINGTON — The Treasury Department says the federal deficit swelled to $263.3 billion in the first five months of this budget year as record spending during the period outpaced record revenues.

The department's latest snapshot of the government's balance sheets, released Wednesday, shows that the deficit for the budget year that began

Oct. 1 was up a whopping 62 percent from the red ink of $162.2 billion for the corresponding five-month period last year.

The latest year-to-date budget deficit of $263.3 billion was an all-time high, the government said.

Spending totaled a record $1.23 trillion, while revenues totaled $967.2 billion, also an all-time high.

For the month of February alone, the government ran a deficit of $175.6 billion, a record for any single month. That was larger than the shortfall of around $170 billion that economists were expecting.

More…

 

Little is settled, yet the media has declared credit markets sound and the problems behind us. Leaders, even in our items but who have huge investments in companies subject to harm from the more transparent valuations in derivatives, have joined the media in the declaration that all is well.

The media has also declared a bull market in the US dollar when the only evidence of that is in the declaration by the beautiful media ladies who would have you believe that they are past masters in every field they report on.

We have now moved from spin of events to the complete creation of events. Adjustment of the perspective has morphed into a "Wag the Dog" creation of something out of absolutely nothing. It will be interesting to see if a unilateral declaration of a dollar bull market can actually create a dollar bull market. I rather doubt it.

In order to create a dollar bull market you must create a euro bear market.

I invite you to review the chart of the price of the euro from 2004 to present. Look and see for yourself if there is any hard evidence the euro has now entered a bear market. A bottom of the dollar has been declared which is the same as saying the euro has topped here.

The euro has NOT topped and will trade at one per two US dollars.

Gold is going to $1650.

You cannot make a silk purse out of a pig’s ear. The dollar has NOT bottomed.

Click chart to enlarge in PDF format

 

Note:

I recommend you see the following movie:

 

Wag the Dog was produced and directed by Barry Levinson. Hilary Henkin and David Mamet co-wrote the screenplay. The film is based on the novel American Hero by Larry Beinhart. The book, however, differs greatly from the picture. In the book the president is specifically George Herbert Walker Bush (in the movie he is unnamed) and the fake war operation is explicitly Desert Storm.

The film explores serious themes, such as the manipulation of the mass media and public opinion, with a comedic sensibility. The film drew attention at the time for similarities to the Clinton sex scandal, although the movie also makes reference to the Persian Gulf War as an example of war used as an electoral tactic. The idea of war as a creation of the media is not, of course, original to the movie. The French postmodernist Jean Baudrillard's ideas in particular are relevant to a discussion of the movie — see for example his essay The Gulf War Did Not Take Place.

More...

 

 

Click chart to enlarge today’s 6 hour action in gold in PDF format as of 12:30 pm CDT with commentary from Trader Dan Norcini.

Dear Jim,

I went over it with the curve this time.

Alex

Dear Alex,

Now you have it.

Regards,
Jim

 

Click here for today’s French Curve chart from CIGA Alex

 

 

Jim Sinclair’s Commentary

The following is a review of several uses of French Curves from CIGA Kevin.

 

Click here for today’s French Curve charts from CIGA Kevin

 

 

Dear CIGAs,

The following is an image of the new $5 dollar bill.

It expires June 15th, 2008.

 

Jim Sinclair’s Commentary

In time, yes.

Price inflation is a complex market cause which will eventually turn quite dollar negative as well.

Gold May Gain for Second Week on Demand for an Inflation Hedge
By Pham-Duy Nguyen

May 12 (Bloomberg) -- Gold may rise for a second straight week on speculation that higher energy costs will boost demand for the precious metal as an inflation hedge.

Nine of 19 traders, investors and analysts surveyed from London to Chicago on May 8 and May 9 advised buying gold, which rose 3.2 percent to $885.80 an ounce last week in New York. Six said to buy, and four were neutral.

Crude-oil futures surged to a record $126.27 a barrel on May 9. Gold rallied 31 percent last year, when a 57 percent surge in oil helped spark the biggest gain in consumer prices in 17 years. Gold reached a record $1,033.90 on March 17.

Gold's gain last week surprised a majority of analysts surveyed May 1 and May 2. The survey has forecast prices accurately in 128 of 210 weeks, or 61 percent of the time.

More…

 

 

Jim Sinclair’s Commentary

Just in case you are buying into the dollar rally permeated by the 24 hour a day media spin:

According to Alibaba.com, the online company that matches Chinese suppliers with international buyers, the vast majority of their almost 700,000 Chinese suppliers no longer use dollars to settle non-US transactions in order to minimise foreign exchange risk. "They are moving to euros, pounds, Australian dollars or even quoting prices in renminbi," David Wei, chief executive, told the Financial Times. Moreover, he added, prices quoted in dollars were now often valid for just seven days compared with the 30-60 days common previously.

More…

 

 

Jim Sinclair’s Commentary

Just in case you are being bamboozled by the 24 hour global spin.

Analysis: Good economic news something of a mirage
By JEANNINE AVERSA,
Posted: 2008-05-10 11:02:45

WASHINGTON (AP) - The unemployment rate drops. Productivity grows. The trade deficit shrinks. Sounds great, right? Not so fast.

Borrowing radio broadcaster Paul Harvey's signature saying: let's hear the rest of the story.

Some seemingly good economic numbers can be something of a mirage masking weaknesses in the national economy.

Let's take the unemployment rate, which dipped to 5 percent in April, from 5.1 percent in March. A closer look reveals that the decline in unemployment is not as good as it looks at first blush. The drop came as the number of people holding part-time jobs for economic reasons swelled to 5.2 million in April, up sharply from 4.4 million a year earlier.

The dip in the unemployment rate also occurred as employers cut jobs for the fourth month in a row, pushing up total losses beyond the quarter-million mark - to 260,000. Wages barely grew and workers' hours were trimmed. Taken altogether, these things point to a tepid picture of employment conditions nationwide.

More…

 

 

Jim Sinclair’s Commentary

In the investment world I have always been an elephant hunter. Look what happens to you if you play for pennies.

House, Citing Costs, Calls for Return of Steel Penny (Update1)
By Brian Faler

May 8 (Bloomberg) -- The U.S. House voted to bring back the steel penny, saying it would be cheaper than the current practice in which the government loses money on every penny it makes because of rising metal prices.

The chamber approved legislation directing the U.S. Mint to begin producing, within the next nine months, pennies made of copper-plated steel -- not the zinc-copper alloy currently used. The measure, passed on a voice vote, also recommends phasing in steel nickels over the next two years.

Democrats, who noted that the government produced steel pennies during World War II when copper demand was high, said the plan would save $1 billion over the next decade. Unlike the gray steel pennies produced during World War II, the new steel pennies would have to retain their copper color.

``This legislation represents a fiscally responsible solution to a situation that grows worse with every penny minted,'' said Representative Zack Space, an Ohio Democrat who sponsored the bill. ``It is an insult to American taxpayers that we are manufacturing coins at a rate more than their face value represents.''

More…

 

 

Jim Sinclair’s Commentary

Between OTC derivatives and deficits, your retirement plan may have been retired. Your retirement will only come when you wear out. Forget smelling the roses.

Growing Deficits Threaten Pensions
Accounting Tactics Conceal a Crisis For Public Workers
By David Cho
Washington Post Staff Writer
Sunday, May 11, 2008; Page A01

The funds that pay pension and health benefits to police officers, teachers and millions of other public employees across the country are facing a shortfall that could soon run into trillions of dollars.

But the accounting techniques used by state and local governments to balance their pension books disguise the extent of the crisis facing these retirees and the taxpayers who may ultimately be called on to pay the freight, according to a growing number of leading financial analysts.

State governments alone have reported they are already confronting a deficit of at least $750 billion to cover the cost of the retirement benefits they have promised. But that figure likely underestimates the actual shortfall because of the range of methods they use to make their calculations, including practices that have been barred in the private sector for decades.

Local governments use these same techniques for their pension funds and face deficits that further contribute to what some investors and analysts say may be shaping up to be a massive breach of faith with a generation of public employees.

This gap is growing more yawning with the years. It has already presented taxpayers with a whopping bill that is eating up a vast portion of government budgets at the cost of other services. In Montgomery County, for instance, pension and retiree health care costs are already higher than the combined budgets for the departments of transportation and health and human services. Eventually, officials responsible for the funds will have to choose whether to continue paying out or renege on benefits promised to retirees.

More…

 

 

Dear CIGAs,

 

INFLATION

Strong inflation numbers are being reported in all parts of the world from the US to Europe, Russia, Brazil, China, India, and everywhere in between. There is great concern in the corridors of power about inflation and the concern is growing. Unfortunately for the economic powers in each country the credit crisis in its continuing problematic format is disallowing strong current action to combat inflation and inflationary psychology.

This is bad for central bankers and very bad for consumers and citizens worldwide. There is one solution that Jim and I have been promoting for a long time.

Gold, energy, food and food related items, base metals and all other resources which are used to create new economic activity and infrastructure will be in demand. Why? Because the only way to grow your way out of an inflationary recession, which is what the developed world is currently finding itself in, is to grow globally.

 

MY GREAT FEAR

My great fear is protectionism, and listening to Barack Obama and Hillary Clinton, protectionism will be a major part of their economic programs. A surer prescription for beggary would be hard to find.

Respectfully yours,
Monty Guild
www.GuildInvestment.com

 

Jim Sinclair’s Commentary

More capital exterminated by the OTC derivative geeks. AIG is a counterparty to many OTC derivatives granted by Bear Stearns?

AIG posts 1Q loss of $7.8B, plans to raise $12.5B in capital
By STEPHEN BERNARD 05.08.08, 5:32 PM ET

American International Group Inc. said Thursday that it swung to a first-quarter loss of $7.81 billion because of losses tied to credit swaps and mortgage-related operations and that it plans to raise a total of $12.5 billion in new cash to shore up its capital base.

AIG, the world's biggest insurer, will raise $7.5 billion through an offering of common stock as well as equity units. The equity units will consist of subordinated debt securities and contracts that require the holders to purchase AIG stock at a future date.

An additional $5 billion will be raised through the offering of fixed-income securities at a later date.

No pricing for the offerings was disclosed.

AIG lost $7.81 billion, or $3.09 per share, during the quarter ended March 31, compared with earnings of $1.58 per share, or $4.13 billion, during the year-ago period.

More…

 

 

Jim Sinclair’s Commentary

A legacy asset? They inherited it?

The following is more damage from derivatives. Good going geeks…

Citigroup considers $400bn asset sales
By Francesco Guerrera in New York
Published: May 9 2008 00:41 | Last updated: May 9 2008 14:51

Citigroup on Friday confirmed that at least $400bn in non-core assets could be sold as part of plans to reduce costs and restore profit growth to double-digit rates.

At a long-awaited meeting with Wall Street analysts, Vikram Pandit, Citi’s chief executive, also plans to confirm his pledge, first disclosed in the Financial Times, to cut Citi’s cost base of more than $60bn by about 20 per cent.

Despite his desire to prune Citi’s balance sheet aggressively, Mr Pandit will use the meeting to rebuff calls for a break-up of the company, say sources familiar with his thinking. They say he will defend Citi’s “universal banking model” combining consumer and wholesale banking.

Mr Pandit is likely to say that about 20 per cent of Citi’s $2,000bn-plus balance sheet consists of “legacy” assets – entire businesses or trading positions outside its core businesses in commercial, consumer and investment banking.

In notes posted on the company’s website on Friday morning, Citi said that it hoped to reduce legacy assets from about $500bn now to less than $100bn within two to three years.

More…

 

 

Dear Jim,

You mentioned “I see gold at a minimum of $1200 in 2008.”

Would this chart be something you visualize in your mind then?

That’s always the way I have approached gold to visualize the future
and have conviction to stay with it.

Regards
CIGA Alex

Click chart to enlarge in PDF format

 

Dear Alex,

The above is a reasonable representation. Take a look at your French Curve. You missed two touch points in JJA 05. Back to the drawing board!

Regards,
Jim

 

 

Click chart to enlarge today’s 6 hour action in gold in PDF format as of 12:30 pm CDT with commentary from Trader Dan Norcini.

Dear CIGAs,

A sharp drop in demand for imports is to be expected from an economy driven by consumption of foreign goods. Consumption represents over 70% of GDP, so retrenchment of the consumer is bound to cause imports to decline. Unfortunately, net exports (exports less imports) continues to fall relative to GDP and import price inflation continues to soar.

Regards,
CIGA Eric

 

Click here for today’s charts from CIGA Eric

 

March trade deficit drops by bigger-than-expected amount
Friday May 9, 8:54 am ET
By Martin Crutsinger, AP Economics Writer

Economic weakness trims March trade deficit with imports falling sharply

WASHINGTON (AP) -- The U.S. trade deficit narrowed sharply in March as demand for imports fell by the largest amount since the last recession was ending.

The Commerce Department reported Friday that the deficit totaled $58.2 billion, down 5.6 percent from February, a larger improvement than had been expected.

The smaller deficit reflected spreading weakness in the U.S. economy, which cut demand for imports by 2.9 percent, the largest one-month decline since December 2001, one month after the last recession ended.

The decline, which pushed imports down to $206.7 billion, was led by a 5.9 percent decrease in America's foreign oil bill. The amount of petroleum fell as the average price for crude oil jumped to an all-time high. Imports of autos and a wide variety of other consumer goods from furniture to toys and clothing also fell, reflecting the hard economic times facing U.S. consumers.

Exports, which have been one of the few strong points in this period of weakness, suffered a setback in March, falling to $148.5 billion, still the second highest level on record but down 1.7 percent from the all-time high set in February. Sales of commercial airliners, cars, computers and machinery were all down.

More…

 

 

Jim Sinclair’s Commentary

What derivatives failed to do to the financials, litigation will.

State Street Subprime Damages May Surpass Reserve
By Carlyn Kolker

May 8 (Bloomberg) -- State Street Corp., the largest money manager for institutions, may have to pay more than the $625 million it set aside for damages from lawsuits over losses from subprime-mortgage investments made for pension funds.

Prudential Financial Inc., the second-largest U.S. life insurer, is suing the Boston-based company on behalf of more than 200 retirement plans, alleging that State Street inappropriately invested their money in risky securities. Three other companies filed similar actions.

Neither side has disclosed loss estimates. State Street reported in regulatory filings that the value of assets ``adversely affected'' by the collapse in subprime mortgages fell $7.8 billion to $6.1 billion at the end of 2007, from $13.9 billion on June 30. State Street initially declined to be specific about how much of the drop might constitute damages. Spokeswoman Hannah Grove said today that ``most'' of the fall resulted from redemptions, declining to be specific on losses.

``We are talking very large in terms of damages,'' said Marcia Wagner, 45, a partner at Boston-based Wagner Law Group. The firm specializes in retirement fund and employee-benefit law. She called the $625 million a ``lowball'' figure.

Adam Savett, a vice president at RiskMetrics Group Inc., a New York firm that studies corporate risks, including legal issues, also said the amount at risk may top $1 billion. A sum of $1 billion is about 80 percent of the company's 2007 net income.

More…

 

 

Dan Norcini’s Commentary

Here is a perfect example of what Monty said would begin to occur in the commodity realm. Notice that both things Monty said would occur are taking place here. First, the speculators get blamed for the problem of high food and raw material costs. Second, government bureaucrats and officials begin meddling thinking that their intervention will cure the problem. What is not shown here but will most certainly follow is even higher costs as scarcity begins to develop in local areas.

Nice call Monty!

India suspends 4 commodity futures on price worries
By Sourav Mishra

MUMBAI (Reuters) - India has suspended futures trading in four commodities with immediate effect in its latest move to rein in soaring inflation, but industry officials said the step would not ease price pressures.

India has taken a series of fiscal measures to bring down prices recently, and the commodities market regulator said trading in futures contracts in soyoil, potato, chana or chick pea, and rubber had been suspended for four months.

The government, facing state and national elections in the next 12 months, is keen to show it is tackling rising food prices, which contributed to a surge in annual inflation to 7.57 percent in mid-April, its highest in more than three years.

"There was a perception in some political quarters that futures trading in agri commodities are responsible for a price rise in the spot... which led to suspension of four commodities," B.C. Khatua, chairman of the market regulator, the Forward Markets Commission (FMC), told Reuters on Thursday.

The ruling coalition's communist allies urged a ban on futures trading, saying it stokes inflation, and the government took the step although a panel it appointed found no clear link between futures and rising spot prices in a report in April.

More…

 

 

Click chart to enlarge today’s 6 hour action in gold in PDF format as of 12:30 pm CDT with commentary from Trader Dan Norcini.

 

 

Click here for today's action in Gold, Barrick Gold, GoldCorp, US Bonds, Streettracks Gold ETF and Unleaded Gasoline with commentary from Trader Dan Norcini

 

 

Dear CIGAs,

I know more than any other writer on the consolidator subject.

The Consolidator has made every effort to dress up as the quiescent producer.

Now the Consolidator has joined the Asians and Middle East in competition to consolidate the junior production and exploration industry.

This is fact. Believe me I know.

The stockholders of the junior exploration and production companies do not, nor do they believe this is the real reason behind the depression in prices.

The Consolidator is out there shopping hard.

Regards,
Jim

Dear CIGAs,

The entire reason for gold's price decline from its high was first the suspicion then the universal opinion that the ECB would race with the Fed to drop interest rates. The euro tanked against the US dollar.

Pundits declared a bull market was in place. This dollar bull news was blasted over the airwaves 24 hours a day to every corner of the globe.

They were WRONG!

Gold has bottomed in this reaction. It will go to a minimum of $1650 The euro will trade at USD $2

Trichet Sees `Rather Protracted' High Inflation
By Gabi Thesing and Christian Vits

May 8 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said inflation will remain ``high'' for some time, signaling that the bank is in no rush to lower interest rates as economic growth slows.

``Inflation rates have risen significantly since autumn,'' Trichet said at a press conference in Athens today after the ECB kept its key rate at 4 percent. ``As we have said, inflation rates are expected to remain high for a rather protracted period of time before gradually declining again.''

The ECB is reluctant to follow the U.S. Federal Reserve in cutting borrowing costs as soaring food and energy prices drive inflation above 3 percent in the 15-nation euro region. The International Monetary Fund estimates economic expansion will weaken to 1.4 percent this year from 2.6 percent in 2007 after the U.S. housing slump pushed up the cost of credit worldwide.

``The level of uncertainty resulting from the turmoil remains unusually high,'' even though ``the economic fundamentals of the euro area are sound,'' Trichet said.

The Bank of England also kept its benchmark rate unchanged today. The euro rose to as high as $1.5417 after Trichet started speaking from $1.5313.

More…

 

 

Jim Sinclairs Commentary
(Originally Posted May 4th)

According to the talking heads, the ECB is going into a race with the US Fed for lower rates. This has been the spin basis for the gold decline based on the spin of lower interest rates in Euroland to produce a euro decline.

1. Whatever the gold price was to do on the downside will end by the first week of May.
2. The US dollar is going to trade at .5200.
3. The euro will trade at a minimum of USD$2
4. The gold price will trade at $1650 on or BEFORE January 14th, 2011.
5. $1024 was the first price block on the first move above $1000.
6. My job is bottom identification, not tops, because there is no top to the gold price for a long time to come. I gave you $1024, but that is as close as I will come to calling any top before the top.
7. Even the article below is written backwards to confuse. If you can't spin it, confuse it. What it says forward is that the ECB will not get into a race with the US Fed on lowering rates.

Europe's Price Surge Persuades Politicians to Back ECB on Rates
By Ben Sills and Gabi Thesing

May 5 (Bloomberg) -- The European Central Bank is winning Europe's political leaders over to its policy of focusing on fighting inflation even as economic growth slows.
 
Politicians from France, Belgium and Luxembourg, who previously complained that the ECB paid too little attention to economic growth, have signaled increasing concern that inflation is eating away at voters' incomes.
 
``There isn't much appetite for having these inflation levels, whether you're the monetary authority or government,'' Robert Barrie, chief European economist at Credit Suisse Group in London, said. ``There's a recognition that inflation is too high and broader-based support for the ECB to do something about it.''
 
The ECB has refused to follow the U.S. Federal Reserve and Bank of England in lowering interest rates after inflation surged since August, to reach a 16-year high of 3.6 percent in March. The bank argues that rising prices are a bigger threat to economic growth than the increase in credit costs resulting from the collapse of U.S. subprime mortgages.

More…