Jim Sinclair’s Commentary

The US dollar is not a safe haven.

Budget deficit sets record in February
CIGA Eric

The government ran up the largest monthly deficit in history in February, keeping the flood of red ink on track to top last year’s record for the full year.

There no end to the spend, spend, spend. Depending on first quarter GDP growth, say 3% nominal, this places the Formula or US Federal Budget Deficit as % GDP at or near the high water mark of -10% for this cycle (third Great Depression). The all time high deficit was recorded during the second Great Depression at -29.7% in 1943.

US Federal Budget (Surplus or Deficit As A % of GDP, 12 Month Moving Average) and Gold London P.M. Fixed:

Source: finance.yahoo.com

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Jim Sinclair’s Commentary

The Formula of 2006 grinds on.

Real Annual Total Receipts Collected
CIGA Eric

While it relatively easy for any government to increase spending, devalue, to create or maintain nominal growth, it is quite difficult to collect tax revenues above and beyond that devaluation. One of the best indicators of real, stable currency, growth is the trend in real, or gold adjusted, annual tax revenues collected. This series peaked in 2001.04. It declined until 2004.10, when it briefly up ticked until 2005.09. It has been trending downward ever since.

Of course, many experts will say that the stock market measures economic activity, but a large portion of its wild gyrations within the depressionary trading box since 2000 has been the direct result of devaluation rather than real economic growth (demand). The downward trend in real, or gold adjusted annual tax revenues confirms it. Until real domestic tax revenues bottom, unlikely until 2012 – 2015, expect the wild gyration in the stock market to be a poor representation of real economic growth.

Real or Gold Adjusted Federal Total Receipts 12-Month Moving Average (TR12MA) AND Federal Total Receipts 12-Month Moving Average Year-over-Year Change (TW12MA12LN):

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Notes From Underground: The trade policy that keeps on giving
Yra Harris | March 9, 2010 at 9:46 pm

The Brazilians announced that they were going to place tariffs on $1 billion-plus of U.S. goods in retaliation for U.S. cotton price supports that the World Trade Organization declared illegal. In a world that is courting the BRICS at every opportunity, the U.S. continues to trip over its legacy of agricultural price supports. The issue of ethanol-based corn subsidies continues to poison the U.S. -Brazilian relationship. Throw in the newly contested cotton sudsidies and you get trade relations that want to grow but are continuously plagued by U.S. political expediency.

While the U.S. desires the Brazilians to stand against Iran by enacting sanctions, the U.S. trade agenda continues to undermine the desires of the State Department. The Obama administration continues to appear to be the leader of the G20, and while it desires to set its agenda, the administration’s ongoing ill-thought trade policies regarding the emerging markets will foster dissonance for a long time. After EADS’ decision to quit the battle versus the heavily-weighted Boeing over supplying refueling tankers to the USAF, there are storm clouds on the global trade horizon. Just as the credit market is showing some signs of thawing, potential trade tensions will cause harm to globalization. This is more important, given that Christine Romer and others have given trade an important role in the U.S. recovery.

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Long Bonds
CIGA Eric

The retest of the gap lows on a contraction of volume suggests that the downside force is weakening. From an limited inter-market perspective of risk-on (stocks) risk-off (bonds), the bullish setup in bonds could be foreshadowing break in equities at least over the short-term. Bear in mind that a window for a larger decline in equities, while nearing, is not open.

US Long Bonds ETF (TLT)

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Treasury Auction Trends
CIGA Eric

TIC flows suggest that China has steadily backed away from US Treasuries since May 2009. Since TIC flows are hardly transparent, it is difficult to know for certain if this is the case, or money is being redirected through other proxies.

One thing is certain the composition of participating (who’s placing and winning the bids) is rapidly changing in the treasury auctions. The primary dealers are increasingly being squeezed out by direct and indirect bidders. Note that direct bidders, largely anonymous, are non-primary dealer submitters bidding for their own house accounts. Indirect bidders, also difficult to track, are customers placing competitive bids through a direct submitter, including Foreign and International Monetary Authorities placing bids through the Federal Reserve Bank of New York.

Are the primary dealers being squeezed out by choice or a consequence of maintaining price, thus, controlling economic perceptions? In light of these trends, today’s 10-year auction results should provide to be interesting.

10-Year Auction Results & Trends:

Source: treasurydirect.gov

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