Jim Sinclair’s Commentary

Yra Harris shares his genius with us. I consider his summation all you need to know to be right up to the minute of what is real out there. All else is prattle, blather, and simple nonsense.

It is all here.

Dear CIGAS,

Not only can Geithner speak Mandarin and Japanese, but he can also evidently moonwalk as well as Michael Jackson.

It seemed on Thursday that Geithner was trumpeting the insertion of the phrase “market oriented exchange rates that reflect underlying economic fundamentals.”

Unfortunately for the Treasury Secretary, the Chinese had not let this desired phrase to be signed onto. Hu Jintao the Chinese president would not allow it to be entered into the final memorandum.

This was yet another slap at Geithner which will force him to do more back stepping than the late Michael Jackson. Not only did the US fail to get a discussion about currency floatation, but the USA was widely criticized for inflating asset bubbles with their low interest rate policies. The US was then hammered on the lack of a free trade policy. Even Mexico jumped on the US for its incipient protectionism.

This was not a successful meeting for the US and we can only hope that Obama comes off better on his trips to China and South Korea.

President Obama’s speech in Japan was met with general acceptance and deemed to be constructive for US – Japanese relations.

The Korea/US free trade agreement still hangs in the balance as Congressional Democrats prevent its passage. This is causing more embarrassment for the President on his Asian tour.

Geithner and company have to do less posturing and more negotiating if the US is to be seen as a leader on global economic issues.

Up to this moment this presidential trip has not gone well, and we believe it will bode ill for the dollar.

Until the Fed starts removing the stimulus, the US will continually be viewed as a serial bubble blower.

There was a story on Bloomberg today suggesting that the Treasury was going to push for TARP to be extended, so we have even more evidence of the administration’s dedication to continual use of the liquidity pump.

There is simply no desire to reign in liquidity and when Obama arrives home he has promised a full-blown White House conference on job creation.

We see continued dollar weakness and further curve steepening.

More importantly is that U.S. leadership is seen as deteriorating as they fail to take the lead on free trade.

The equity markets will like the continued effects of the global carry trade still maintaining its robustness.

We commented in Friday’s piece about some of the reversal action we saw on Thursday and noted how the gold and Aussie dollar reversed off highs and wanted to see if the reversal action was sustained. Friday we received our answer and it was unequivocally a one day event as the Aussie especially rallied on Friday, going out on its high. Gold also turned and rallied most of the day, also going out on its high.

We cannot stress enough that economic models are inherently flawed as a trading indicator because they fail to take into account the market ramifications of political missteps. That is why we continue to iterate that 2+2=5 is also a beautiful thing and why we give greater credence to the analysis directed by political economy.

The impact of the global recession is met by domestic policies and as long as this holds true all the G20 meetings and APEC take a back seat to the needs of the political nation-state.

Congress will do what it needs to do to ensure its re-election. China will do what it needs to do to make work for the millions displaced from its rural economy. This thought process will continue to drive our trading views, of course relying on the technicals to spot breakouts both up and down as the soundest technique of risk management.

We also look to what we have referred to as negative divergence, which is when markets react contrary to the fundamentals of the market.

We saw this by the close of Friday when the long end of the debt markets rallied even with the dollar weak and the carry trade back in full force.

This catches our attention, as we know the underlying fundamentals of the DEBT markets are terrible as the continuing abundant supply weighs heavily.

We will be attentive to checking resistance levels to see where the strength ought to ebb but with retail sales and the empire state report out today we hope to get a good test of resistance.

We know that the long end of the DEBT market is viewing deflation as a greater threat but at some point that will have to turn against itself as the Fed and Treasury begin to panic.

That is what gold and the dollar has been anticipating.

We look for the debt market to eventually paint a similar story, especially when its major creditors have so derisively received the U.S.

Yra