What does a large new short do when DIRTY TRICKS FAIL.

1. Sell the stock as gold rises to unsettle the weaker hands
2. Work the charts, certainly at a gap close, that coincides with the most meaningful downtrend to work the day and inter-day traders.

Jim Sinclair’s Commentary

In this very interesting article three major points are made:

1. We have reviewed this which is the most important currency development in 136 years.

"In reaction to the Fed’s QE scheme, Brazil and China are working towards bypassing the US-dollar in bi-lateral trade transactions, challenging the status of the greenback as the world’s leading international currency. “We don’t need dollars,” said Brazilian President Luiz Inacio Lula da Silva. “It’s crazy that the dollar is the reference, and that you give a single country the power to print that currency.”

2. Take the word "Iran" out and consider the domino impact on markets that will be unleashed by the geopolitical Andromeda strain – Pakistan goes Taliban.

"For Iran’s neighbors in the Middle East, the atomic fireworks display in North Korea proves the West cannot afford to wait much longer, until intelligence agencies confirms Iran’s nuclear capability, because Tehran can surprise the world with an underground atomic test of its own. When that day arrives, crude oil futures could soar above $100 per barrel, lifting grains and precious metals higher for the ride."

3. QE has busted the bond market and the bust is only starting now. A break of the 30 year below 112 – 113 (which is going to happen) will result in a bear market in US Treasuries that will last at least a decade and announce the impending hyperinflation.

"However, what would happen if the QE addiction leads to a collapse in G-7 bond prices? “The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.” Ernest Hemingway, “Notes on the Next War: A Serious Topical Letter”, 1935."

Can North Korean Nukes Rattle Global Markets?
Posted Wednesday, 27 May 2009
By Gary Dorsch, Editor, Global Money Trends

News that North Korea’s mercurial leader Kim Jong Il authorized the detonation of a nuclear bomb on May 25th, comparable to those that obliterated Hiroshima and Nagasaki, barely caused a ripple in the global financial markets. Japanese and South Korean stocks initially fell in a knee-jerk reaction, but soon recouped most of their losses, as traders shrugged off the nuclear fallout, – figuring it was just a harmless display of Kim Jong Il’s temper tantrums that erupts once every few years.

When foreign markets failed to take Pyongyang seriously, Kim Jong Il upped the ante by firing the Musudan-Ri missile, on which N-Korea could ultimately place a nuclear warhead, with a range of 2,500-miles. Pyongyang then fired three shorter-range missiles into the Sea of Japan. But global stock markets are so intoxicated with super-cheap money injected by the G-20 central banks each day, that even nuclear bomb blasts didn’t rattle the post March 10th“green-shoots” rally.

Pyongyang vowed on May 27th, to attack South Korea if its ships participate in a US-led effort to interdict vessels carrying missiles or weapons of mass destruction. Pyongyang also declared that the truce that ended the Korean War was no longer valid. “Those who provoke North Korea will not be able to escape its unimaginable and merciless punishment,” the North’s official news agency said. Calling South Korea’s government a “group of traitors,” “our revolutionary forces will consider the interdiction of ships as a declaration of war against us.”

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Jim Sinclair’s Commentary

Plausible denial when it all goes wrong.

Fed: We Were Never Trying To Set Credit Market Rates
Joe Weisenthal – May. 29, 2009, 7:40 AM

The Fed has finally responded to the soaring mortgage rates, and the apparent failure of quantitative easing.

Their spin — courtesy of CNBC’s Steve Liesman (natch) — is that the Fed was never trying to force down mortgage rates or "set" rates. Rather, by stepping in and purchasing bonds, the Fed is merely trying to "support" the credit markets.

Frankly, we’re not sure that there’s a difference between the two statements. "Supporting" credit markets is another way of making sure that interest rates aren’t getting out of hand. And to the extent that the credit markets need that Fed support is not very promising.

Either way it seems clear. The Fed believes that depressing rates is how they’ll stabilize the housing market and the sudden spike up torpedoes that goal.

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Jim Sinclair’s Commentary

Please take note of the discussion of Taliban tactics and the most probable performance of Pakistan forces.

Pakistan Civil War News Updates — May 29, 2009
FRIDAY, MAY 29, 2009

Taliban In Swat Slip Away, Live to Fight Another Day — Captain’s Quarters

One month ago at the beginning of the Pakistan offensive against the Taliban in the North West Frontier Province, the Pakistan Army claimed that the offensive would take approximately one week. We responded that the Pakistan Army, regardless of whether they had the will to conduct counterinsurgency operations, didn’t understand how to, adding that:

The Taliban would simply melt away, wait for the Pakistan Army to leave, and then re-enter the area and kill anyone who cooperated with the Army. Or if they stand and fight, the history of the Pakistan Army indicates that they will simply pull back and sign a new peace deal.

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Jim Sinclair’s Commentary

When Pandora’s Box of Quantitative Easing was opened, it could not and will not be closed!

Bond markets defy Fed as Treasury yields spike
By Ambrose Evans-Pritchard
Last Updated: 5:51AM BST 29 May 2009

The US Federal Reserve may soon be forced to launch fresh blitz of quantitative easing whatever the consequences for the US dollar, or risk seeing economic recovery snuffed out by the latest surge in long-term borrowing costs.

Yields on 10-year Treasury bonds have risen relentlessly since March when the Fed first announced its plan to buy $300bn (£188bn) of US government debt directly, a move that briefly forced rates down to nearly 2.5pc, a level thought to be the Fed’s implicit target.

Yields have jumped to 3.69pc – after spiking as high as 3.74pc on Wednesday – pushing up the standard 30-year mortgage loan to 5.08pc and lifting the borrowing cost for corporations.

"The Fed is going to have to consider doubling its purchases of Treasuries," said Ashraf Laidi, from CMC Capital Markets. "We could be nearing the end-game for the US dollar but the Fed has little choice at this point. We’re in a vicious circle where any policy aimed at supporting the US economy must be at the expense of the dollar."

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Jim Sinclair’s Commentary

The saying is "Records are made to be broken." This one will be.

Troubled Bank Loans Hit a Record High
May 30, 2009
By FLOYD NORRIS

OVERALL loan quality at American banks is the worst in at least a quarter century, and the quality of loans is deteriorating at the fastest pace ever, according to statistics released this week by the Federal Deposit Insurance Corporation.

The report highlighted that even as the government and major banks have scrambled to deal with the impaired securities the banks own, the institutions have been plagued by an unprecedented volume of old-fashioned loans going bad.

Of the entire book of loans and leases at all banks — totaling $7.7 trillion at the end of March — 7.75 percent were showing some sign of distress, the F.D.I.C. reported. That was up from 6.9 percent at the end of 2008 and from 4.1 percent a year earlier. It also exceeded the previous high of 7.26 percent set in 1990 and 1991, during the last crisis in American banking.

The F.D.I.C. has been collecting the figures since 1984.

Virtually the only encouraging news in the report was that the banks’ loan portfolio might be worsening more slowly than it was. While the increase of 3.65 percentage points in a year is the highest ever, the quarterly rise was smaller than in the fourth quarter of last year.

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