July construction spending tumbles to 10-year low
Reuters

WASHINGTON (Reuters) – U.S. construction spending fell more than expected in July to its lowest rate in 10 years, according to a government report on Wednesday that added to fears economic growth was stagnating.

The Commerce Department said construction spending dropped 1.0 percent to an annual rate of $805.2 billion, the lowest since July 2000. June’s construction outlays were revised down to show a 0.8 percent fall, instead of the previously reported 0.1 percent gain.

Economists polled by Reuters forecast construction spending falling 0.5 percent in July.

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US private sector cuts 10,000 jobs in Aug – report
Wed Sep 1, 2010 8:21am EDT

NEW YORK (Reuters) – U.S. private employers unexpectedly cut 10,000 jobs in August compared to a revised gain of 37,000 in July, a report by a payrolls processor showed on Wednesday.

The July figure was originally reported as a gain of 42,000.

The median of estimates from 34 economists surveyed by Reuters for the ADP Employer Services report, jointly developed with Macroeconomic Advisers LLC, was for a rise of 19,000 private-sector jobs in August.

The ADP figures come ahead of the government’s much more comprehensive labor market report on Friday, which includes both public and private sector employment.

That report is expected to show a fall in overall nonfarm payrolls of 100,000 in August, based on a Reuters poll of analysts, but a rise in private payrolls of 41,000. [ECI/US]

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Jim Sinclair’s Commentary

What is the probability that the last quarter will be the best quarter for GM until 2015?

That is a good setup for an IPO.

GM Sales Fall 25% as Unemployment Wards Off ConsumersBy Keith Naughton and Tim Higgins – Sep 1, 2010 8:49 AM MT

General Motors Co.’s sales fell 25 percent last month and trailed analysts’ estimates as the U.S. auto industry headed for its worst August in 28 years.

GM said deliveries fell to 185,176 from 246,479 last August, when the U.S. government’s “cash for clunkers” incentive program boosted sales. The largest U.S. automaker was expected to report a 19 percent decrease, including an adjustment for the number of selling days in August, the average estimate of four analysts surveyed by Bloomberg. On that basis, sales fell 22 percent, Detroit-based GM said in a statement.

U.S. auto sales last month probably were the slowest for August in 28 years as model-year closeout deals failed to entice consumers concerned about the economy and their jobs. Deliveries industrywide may have reached an annualized rate of 11.6 million vehicles last month, the average of eight analysts’ estimates compiled by Bloomberg. That would be 18 percent below last year’s 14.2 million pace and above July’s 11.5 million rate.

“The car market and the overall economy is pretty weak,” Joe Phillippi, principal of consulting firm AutoTrends in Short Hills, New Jersey, said today by telephone. “Showroom traffic is down. We still have issues on the margin with some people not being able to get credit and people are nervous.”

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Jim Sinclair’s Commentary

Maybe they are going to price average it with their 2008 purchase on Bear Stearns common shares.

Fed lets China firm buy Morgan Stanley shares
WASHINGTON | Tue Aug 31, 2010 3:26pm EDT

WASHINGTON (Reuters) – The Federal Reserve on Tuesday approved a proposal by Chinese sovereign wealth fund China Investment Corp. to buy up to 10 percent of the voting shares of Morgan Stanley.

CIC has said that it does not intend to seek controlling interest of Morgan Stanley and the Fed said it did not see any adverse impact on competition or on the concentration of banking resources from allowing the deal to go ahead.

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Jim Sinclair’s Commentary

The Soros bubble is comical when you look at all the circumstances over which it occurred.

$1500 seems a convenient number to the quoted parties but the real number is $1650 and higher.

Gold Rallying to $1,500 as Soros’s Bubble Inflates
By Nicholas Larkin – Aug 31, 2010 9:28 AM ET

Investors are accumulating enough bullion to fill Switzerland’s vaults twice over as gold’s most- accurate forecasters say the longest rally in at least nine decades has further to go no matter what the economy holds.

Analysts raised their 2011 forecasts more than for any other precious metal the past two months, predicting a 10th annual advance, data compiled by Bloomberg show. The most widely held option on gold futures traded in New York is for $1,500 an ounce by December, or 18 percent more than the record $1,266.50 reached June 21. Holdings through bullion-backed exchange-traded products are already at more than 2,075 metric tons, within 0.1 percent of the all-time high.

“Either a swift economic recovery or further dismal economic performance should bring new buyers into the market,” said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt who was the most accurate forecaster in the first quarter and expects the metal to rise as high as $1,400 next year. “A stronger economy would create more jewelry demand. If the economy stays weak or gets worse, then investors will be looking for a safe haven.”

Investors added to their gold holdings through ETPs for three consecutive weeks, reflecting demand for assets typically favored in times of financial stress. Two-year Treasury yields fell to a record low of 0.4542 percent on Aug. 24 and the yen reached a 15-year high against the dollar the same day. Pacific Investment Management Co., Deutsche Bank AG and Citigroup Inc. have announced or are offering funds or traded instruments designed to guard against sudden market declines.

Swiss Reserves

Buyers accumulated almost 278 tons of gold in 2010 across 10 ETPs tracked by Bloomberg, worth $10.4 billion at this year’s average price. Total holdings are almost twice Switzerland’s official reserves of 1,040 tons, data compiled by the World Gold Council show. ETP holdings reached a record 2,078 tons July 19, data compiled by Bloomberg show.

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Jim Sinclair’s Commentary

This is a serious and revealing article, full of fact, that should be reviewed by all interested in gold.

Gold & Silver Market Suppression Failures Flash Buy Signal, Part 2
August 31, 2010
Robert Kientz

In Part 1 of this 5-part series, we discussed two agreements that Central Banks used to suppress the price of gold in the marketplace. Please read Part I before proceeding with this article.

So do the Central Banks still have gold?

A nice quote from the GATA article regarding availability of Canadian central bank gold:

When I published my essay “When Irish Eyes are Smiling: the story of Brian Mulroney and Canada’s gold,” the good folks at the Bank of Canada told me that there had been no physical gold in the bank vaults for years. To quote my essay directly:

“They advised me (early in 2002) that Canada does not really own this gold at all (at the time we were supposed to have about 40 tonnes). What was left of it had been leased out to various bullion banks years ago …and yes, it (was) being accounted for as requested by International Monetary Fund accounting rules regarding leased gold. Canada’s gold cupboard is bare … not a 400-oz. good-delivery bar in sight.”

What about the US gold stocks?

In a book written by Chris Weber and summarized on Lew Rockwell’s site, we noted that in the one audit of Fort Knox:

The shocking admission Ft Knox holds very little good delivery gold was made to Mr. Durell by the chief official of the General Accounting Office (GAO).

By February 1975 Saxbe was Ambassador to India, so Durell communicated his displeasure through his local Virginia congressman.

As a result of this, the GAO sent four men to Durell’s Virginia farm to try to convince him of the validity of their accounting practices. In charge was Hyman Krieger, the GAO’s Washington regional manager.

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Jim Sinclair’s Commentary

Looks like a deal, but for what?

I’ll give you one guess only.

No Charges for Moody’s in Ratings Violation
By EDWARD WYATT
Published: August 31, 2010

WASHINGTON — The Securities and Exchange Commission said Tuesday that it had declined to charge Moody’s Investors Service for violating securities laws by failing to comply with its own procedures for rating complex derivative securities in 2007.

The decision followed an S.E.C. investigation, and the commission used the opportunity to warn all of the national credit rating agencies that it would use new powers under the Dodd-Frank banking law to take action against similar conduct, even if it occurred outside the United States, as the Moody’s case did.

The S.E.C. said it had declined to pursue a fraud enforcement action in the case because of jurisdictional issues. The securities in question originated in and were rated and sold in Europe, the S.E.C. said.

The action by the commission comes two years after the beginning of a financial crisis caused in part by widespread losses on mortgage-related derivative securities that had been rated highly by national credit ratings agencies, including Moody’s.

Though the credit rating agencies have come under criticism over their role in the financial crisis, they have not been the subject of major enforcement actions by securities regulators.

Moody’s disclosed the inquiry in May, saying that the S.E.C. had warned that it might sue the firm for making “false and misleading” statements as part of its application as a nationally recognized statistical rating organization, known in S.E.C. parlance by the initials N.R.S.R.O.

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Jim Sinclair’s Commentary

The final Pillar of Gold at $1650 is US Government Long Bonds.

Titan Capital Joins Black Swan’s Taleb in Raising Bets on Crash
By Netty Ismail – Aug 30, 2010 4:29 PM PT

Titan Capital Group LLC, whose flagship volatility fund rose 21.6 percent as stocks tumbled in May, has raised bets on extreme market moves because investors’ views on the economic outlook have polarized.

The New York-based hedge fund, which manages about $400 million, has added “a lot more” cheap, out-of-the-money options, betting the market is underestimating the likelihood of a crash, founder Russell Abrams said in a phone interview. Treasuries, German government bonds and Japan’s yen are pricing in economic outcomes that are bleaker than the stock market expects, said the former co-head of U.S. equity derivative trading and convertible arbitrage at Merrill Lynch & Co.

“They are pointing to a much more dangerous environment than what equity investors believe,” he said in an interview Aug. 27. “Either you’re going to see the bond market make the the big move or the equity market make the big move; the current situation is not in equilibrium.”

Nassim Nicholas Taleb, whose book “The Black Swan” is about how unforeseen events can roil markets, said Aug. 11 he is “betting on the collapse of government bonds” and that investors should avoid stocks. Government bonds around the world have rallied on growing signs the global economic recovery is faltering, driving yields on two-year Treasury notes as well as German 30-year and 10-year bonds to record lows last week.

The yen reached a 15-year high of 83.60 per dollar Aug. 24. The Standard & Poor’s 500 Index gained 9.4 percent from July 1 until Aug. 10, when the Federal Reserve said that growth probably will be “more modest.”

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Titan Capital Joins Black Swan’s Taleb in Raising Bets on Crash
CIGA Eric

The Final Pillar of the Gold price at $1650 is US government long bonds

Jim

Jim,

In US dollar terms, yes, the US government long bond market is the final pillar to fall.

Five Golden Pillars:

All charts have been updated through August 2010.

Long-Term U.S. Government Bonds Total Return Index (LTGBTRI):

In a multi-dimensional world, where capital flows recognize the effects of currency devaluation, the US long bond market has already generated a recognizable top in constant currency terms – gold. The long-term U.S. Government Bond Total Return Index to Gold ratio recognized a top in 2002.

Long-Term U.S. Government Bonds Total Return Index (LTGBTRI) to Gold Ratio:

Capital (flows), unlike headline analysis, is neither blind nor stupid. The higher order deceleration in the bond market’s secular trend is mirrored by higher order acceleration in the gold market’s secular trend. This is market by the red and blue parabolic curves above and below.

Gold, London P.M. Fixed:

The breakout in the gold stocks suggests that it is happening here and now.

S&P Gold (Formerly Precious Metals Mining)*
*S&P Gold from 1945, Barron’s Gold Stock Index from 1939-1945, 1922-1939 Homestake Mining:

Stick your head in the sand if you like. I only suggest that if you do, you might not like what you see when you pull it out.

Regards,
Eric

Nassim Nicholas Taleb, whose book “The Black Swan” is about how unforeseen events can roil markets, said Aug. 11 he is “betting on the collapse of government bonds” and that investors should avoid stocks. Government bonds around the world have rallied on growing signs the global economic recovery is faltering, driving yields on two-year Treasury notes as well as German 30-year and 10-year bonds to record lows last week.

Source: bloomberg.com

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One thing is for sure. Regardless of whether the rumors are true about the Chinese central banker, you can be sure the people who run the Chinese central bank will not buy many more US Treasuries.

Yes, this statement speaks to the Chinese rating of US Treasury investments, a definite downgrade that Moody’s and Standard and Poors dare not make.

Japan debt safer than U.S. debt: China economist
By Simon Rabinovitch and Aileen Wang
Posted 2010/08/11 at 7:42 am EDT

BEIJING, Aug. 11, 2010 (Reuters) — China has been buying record amounts of Japanese government debt because it is less risky than U.S. debt, at least in the short term, a Chinese government economist said on Wednesday.

Investing in Japanese bonds is safer because so much of the country’s debt is held domestically, and the yen is on course to strengthen further, said Zhang Ming, an economist with the Chinese Academy of Social Sciences, a top government think-tank.

"Even though the difference in yields is big, China has been abandoning U.S. debt and picking up Japanese debt. This definitely shows that it believes the risks of U.S. debt far exceed those of Japanese debt," Zhang said in a report issued by his research institute.

The report was issued a day after the Federal Reserve said it would buy more U.S. government debt in a form of mild quantitative easing to counter economic weakness.

Top Chinese leaders have previously registered their concerns about lax U.S. fiscal policies eroding the value of their investments in the United States.

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Jim Sinclair’s Commentary

I wonder if he just figured this out.

This has been true since they planted the buttonwood tree.

Hedge Fund Manager Dan Loeb: "The Whole System Is Rigged"
Posted Aug 31, 2010 12:48pm EDT by Courtney Comstock
Provided by the Business Insider, August 31, 2010:

Apparently everyone’s forwarding around the powerful message in hedge fund manager Dan Loeb’s most recent letter to investors.

The message, from the number of chunks of quotes Dealbook pulls out of Loeb’s letter is: I don’t trust the government to do what’s best for the economy, so I’m pulling out of companies that could be impacted by public policy.

Third Point’s most recent investment strategy reflects Loeb’s belief that banks, healthcare, and for-profit education companies are "overly exposed to unpredictable government regulation."

In the startling conclusion, Loeb says:

“It is easy to see why so many people have concluded that the entire system is rigged.”

Here are the quote chunks we pulled from Dealbook’s analysis of the letter. Key points are bolded:

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Jim Sinclair’s Commentary

And I understand in Iran.

Citigroup to Increase China Workforce to 12,000 in Three Years
By Cathy Chan – Aug 31, 2010 9:01 AM MT

Citigroup Inc. plans to almost triple its workforce in China to as many as 12,000 people in the next three years, intensifying its rivalry with HSBC Holdings Plc in the world’s fastest-growing major economy.

The New York-based bank will hire more in China than in any other market in Asia-Pacific, Stephen Bird, Citigroup’s co-chief executive officer for the region, said yesterday in an interview. Citigroup has 4,500 employees in China and 50,000 in Asia, according to spokesman James Griffiths.

Citigroup CEO Vikram Pandit is raising his bet on China, where banks extended a record $1.4 trillion of new loans last year. Unlike HSBC and Standard Chartered Plc, Citigroup has no plans to sell shares in China and will instead fund expansion with money generated in Asia, Bird said on Aug. 25.

“China is one of Citi’s priority markets globally,” said Bird, 43. “We have aggressive consumer banking expansion plans and want to open branches as fast as regulators in China will let us.”

Citigroup has 29 outlets in the country and plans to add 10 more this year. That will still leave it short of HSBC’s 102 outlets and the 59 operated by Standard Chartered.

Standard Chartered, the U.K. bank that gets more than three-quarters of profit from Asia, has more than 4,000 employees at its China unit. HSBC, Europe’s largest lender by market value, has more than 5,000. Industrial & Commercial Bank of China Ltd. had 390,000 workers at the end of 2009.

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Jim Sinclair’s Commentary

Even the dead are now homeless.

Jim Sinclair’s Commentary

The Consumer Confidence Index is a survey of economic statistics that is dicey at best.

Consumer confidence rose more than forecast in August. Specifically, the Conference Board’s confidence index increased to 53.5 from a five-month low of 51 in July; beating the Street’s estimate of 50.7. (From Bloomberg.com)

Jim Sinclair’s Commentary

Case-Shiller, your nose is growing.

The S&P/Case-Shiller home-price index for June increased 4.2% from June 2009. (From Bloomberg.com)

Jim Sinclair’s Commentary

Debka is rumored (unconfirmed) to be influenced by Massad.

Regardless, this development is telling.

US to sell Israel massive military fuel stocks worth $2 bn
DEBKAfile Exclusive Report August 28, 2010, 12:53 PM (GMT+02:00)

On Aug. 6, the US Defense Security Cooperation Agency, DSCA, informed Congress of the sale to Israel of 60 million gallons of unleaded gasoline, 284 million gallons of JP-8 aviation jet fuel and 100 million gallons of diesel fuel at an estimated cost of two billion dollars. The date is significant, DEBKAfile’s intelligence sources find.  Ten days earlier, the Japanese tanker M.Star was attacked in Omani waters of the Strait of Hormuz with 200,000 tons of oil.

Although American experts who examined the vessel, they never attributed the damage to sabotage by Iran or al Qaeda, despite the latter’s claim of responsibility on Aug. 4 While Washington did its best to sweep the incident under the rug, Saudi intelligence were worried enough about the threat inching dangerously close to the Gulf’s oil exporting lifeline to launch an independent investigation of the incident.

Their investigators discovered it was staged by a Saudi terrorist who operates out of Iran under the orders of the Revolutionary Guards. To Riyadh, the episode looked like a blunt warning from Tehran to Washington and its allies about the consequences – not just of a direct strike against Iran’s nuclear facilities, but the possibility of sanctions upsetting the equilibrium of the Islamic regime.

Blockage of the Strait of Hormuz would cut off Israel’s primary source of fuel. Therefore, our sources report, a series of accords, some of them secret, have been transacted to back up America’s standing commitment to keep Israel supplied with its energy needs in the event of armed conflict or crisis on world fuel markets.

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Jim Sinclair’s Commentary

The Federal Budget Deficit is going further and further out of control.

Record number in government anti-poverty programs
By Richard Wolf, USA TODAY

WASHINGTON — Government anti-poverty programs that have grown to meet the needs of recession victims now serve a record one in six Americans and are continuing to expand.

More than 50 million Americans are on Medicaid, the federal-state program aimed principally at the poor, a survey of state data by USA TODAY shows. That’s up at least 17% since the recession began in December 2007.

POLITICS: Welfare agencies boost voter rolls

"Virtually every Medicaid director in the country would say that their current enrollment is the highest on record," says Vernon Smith of Health Management Associates, which surveys states for Kaiser Family Foundation.

The program has grown even before the new health care law adds about 16 million people, beginning in 2014. That has strained doctors. "Private physicians are already indicating that they’re at their limit," says Dan Hawkins of the National Association of Community Health Centers.

More than 40 million people get food stamps, an increase of nearly 50% during the economic downturn, according to government data through May. The program has grown steadily for three years.

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The following is a rumor and must be read as such.

Stratfor is usually a good source.

What gets my attention is speculation on fear of the death penalty for owning US government bonds. That has to tell you something.

China: Rumors of the Central Bank Chief’s Defection
August 30, 2010 | 1406 GMT

Rumors have circulated in China that People’s Bank of China (PBC) Gov. Zhou Xiaochuan may have left the country. The rumors appear to have started following reports on Aug. 28 which cited Ming Pao, a Hong Kong-based news agency, saying that because of an approximately $430 billion loss on U.S. Treasury bonds, the Chinese government may punish some individuals within the PBC, including Zhou. Although Ming Pao on Aug. 30 published a report on its website indicating that the prior report was fabricated by a mainland news site that had attributed the false information to Ming Pao, rumors of Zhou’s defection have spread around China intensively, and Zhou’s name has been blocked from Internet search engines in China.

STRATFOR has received no confirmation of the rumor, and reports by state-run Chinese media appeared to send strong indications that Zhou is in no trouble at the moment. However, the release of this rumor and its dispersion throughout the public is significant, particularly as the Communist Party of China (CPC) is preparing for a leadership transition in 2012.

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The newest fallacy is that the Fed has no more tools left to use.

The Fed has an enormous tool box called “QE to Infinity.” Nothing restricts that creation of money out of thin air whatsoever, which in turn means Currency Induced Cost Push Inflation. That is the message of illustration 3 below.

Jim Sinclair’s Commentary

Our bullion delivery man, JB Slear, says:

"No Bank failures for this week… after all, can’t have a failure on Jackson hole day."

Jim Sinclair’s Commentary

Remember all the MOPE about Fed tests of reverse repos as a method of draining liquidity?

Draining liquidity was all the talk on F-TV with the herd of Talking Heads bobbing their heads in agreement without any doubt.

The Fed will tighten? What raving BS. Now is there any further question in your mind that as the Western World economy craters, QE to Infinity will balloon to new heights? It will and illustration number three is the means to Currency Induced Cost Push Inflation.

Have you fully protected yourself and the nearest, dearest? Gold at $1650 looks like a minimum projection.

Fed Ready to Dig Deeper to Aid Growth, Chief Says
By SEWELL CHAN
Published: August 27, 2010

JACKSON HOLE, Wyo. — The Federal Reserve chairman, Ben S. Bernanke, signaled once again on Friday that the central bank was prepared to act if the economy continued to weaken, as yet another economic report confirmed that the recovery had slowed to a crawl.

Mr. Bernanke made clear that while the Fed could take various steps, including large purchases of government debt, “central bankers alone cannot solve the world’s economic problems.” Speaking at the Fed’s annual symposium here, he hinted broadly that political leaders had to take steps to tackle the deficit and the trade imbalance.

Hours before Mr. Bernanke spoke, the Commerce Department lowered its estimate of economic growth in the second quarter to an annual rate of 1.6 percent, after originally reporting last month that growth from April through June was 2.4 percent. Economists had been predicting a steeper decline, and stock prices rose after the markets opened.

While Mr. Bernanke announced no new steps that the Fed would take immediately, he said the central bank was determined to prevent the economy from slipping into a cycle of falling wages and prices, a situation he said he did not think was likely. Instead he predicted that growth would continue modestly in the second half of the year and pick up in 2011.

Mr. Bernanke said the Fed, having kept short-term interest rates at nearly zero since 2008, had essentially four options:

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QE to infinity is, and will continue to occur. Gold will trade at $1650 and higher.

Respectfully,
Jim

Bernanke Signals Stepped-Up Efforts to Spur Economy
By SEWELL CHAN
Published: August 27, 2010

JACKSON HOLE, Wyo. — The Federal Reserve chairman, Ben S. Bernanke, said Friday that the central bank was determined to prevent the economy from slipping into a cycle of falling prices, even as he emphasized that he believed growth would continue in the second half of the year, “albeit at a relatively modest pace.”

To help sustain the economy, Mr. Bernanke gave his strongest indication yet that the Fed was ready to resume its large purchases of longer-term debt if the economy worsened, a move that would add to the Fed’s already substantial holdings.

“We have come a long way, but there is still some way to travel,” Mr. Bernanke said.

“I believe that additional purchases of longer-term securities, should the F.O.M.C. choose to take them, would be effective in further easing financial conditions,” Mr. Bernanke told a Fed policy symposium here. He was referring to the Federal Open Market Committee, the panel that sets interest rates, which Mr. Bernanke leads; some members have expressed unease over the prospect of the Fed pursuing any further monetary accommodation.

“Central bankers alone cannot solve the world’s economic problems,” he said.

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Jim Sinclair’s Commentary

As was said in the prophetic movie "Enemy of the State," never look up unless you wish to be on Uncle’s candid camera.

Runaway Drone Violated Capital Airspace
Sharon Weinberger

DENVER (Aug. 26) — A military drone that was supposed to be remotely controlled broke off contact with its operators and wandered into restricted airspace around the nation’s capital, the military has revealed.

More than an hour into what was otherwise a normal flight, pilots remotely operating the MQ-8 Fire Scout lost contact with the unmanned helicopter on Aug. 2. The drone then traveled 23 miles away from Patuxent River Naval Air Station in Maryland and toward Washington. Though it never reached the District of Columbia, it did cross into the National Capital Region airspace, which is restricted.

"The operator team shifted to [the] other Ground Control Station, restoring link and successfully commanding vehicle to recover at Webster Field," Capt. Tim Dunigan, the Fire Scout program manager, said in a statement released to AOL News. "The aircraft returned to Webster Field safely without injuries, and without damage to the aircraft or vessel."

The lost communication link was attributed to a software anomaly that has since been identified and fixed, Dunigan said.

News of the runaway drone was released amid a popular industry conference dedicated to unmanned aircraft and robots being held in Denver. It also comes at a time when supporters of drones are trying to convince the Federal Aviation Administration to loosen restrictions on operating unmanned aircraft in civil airspace.

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Jim Sinclair’s Commentary

QE to infinity is the reality of our current economic situation.

Gold will go to $1650.

Bernanke: Fed will take action if economy falters
By JEANNINE AVERSA

JACKSON, Wyo. — Federal Reserve Chairman Ben Bernanke said Friday that the Fed will consider making another large-scale purchase of securities if the slowing economy were to deteriorate significantly and signs of deflation were to flare.

The Fed chief offered his most extensive thoughts yet on how to pull the U.S. economy out of a deepening slump. His remarks came 90 minutes after the government said the economy slowed sharply in the second quarter to a 1.6 percent pace.

Fears are growing that the country could lapse back into a recession. Bernanke described the economic outlook as "inherently uncertain" and said the economy "remains vulnerable to unexpected developments."

Bernanke stopped short of committing to any specific action. But he raised the prospect of another Fed purchase of securities, most likely government debt or mortgage securities, to drive down rates on mortgages and other debt to spur more spending by Americans.

"I believe that additional purchases of longer-term securities should the FOMC choose to undertake them, would be effective in further easing financial conditions." he said. The FOMC stands for the Federal Open Market Committee, the group of Fed policymakers that makes decisions on interest rates and other steps to aid the economy.

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Jim Sinclair’s Commentary

Now tell me this chart does not look like our illustration number one, a ski jump.

How about housing’s first breakdown of strong support?

Failure to return to the support and through it is downright SCARY.

Jim Sinclair’s Commentary

The reason for this is the quiet disaster. The major losses in retirement program investments is twofold:

1. The legal liability that the managers of pension funds absolutely have as compared to your average whacked hedgie.

2. The fact that for decades pension funds have been Wall Street’s circular file for junk.

Illinois Teachers’ Retirement System selling off $3B to cover benefits
By: Barry B. Burr August 24, 2010

(Crain’s) — Illinois Teachers’ Retirement System, Springfield, plans to sell $3 billion in investments, or about 10% of its $33.1 billion in assets, in the current fiscal year to pay pension benefits, according to Dave Urbanek, public information officer.

The system is the fifth Illinois statewide defined benefit plan to sell off investments this fiscal year to pay benefits.

Illinois State Universities Retirement System, Champaign, expects to sell $1.2 billion in investments from its $12.2 billion defined benefit fund this fiscal year to raise liquidity to pay benefits to participants.

The Illinois State Board of Investment, Chicago, could sell $840 million investments from its $9.9 billion fund to pay benefits of the Illinois State Employees’ Retirement System, Illinois Judges’ Retirement System and Illinois General Assembly Retirement System. ISBI oversees the investments of the three systems.

The liquidity stress from the investment sales at the five plans could force each of them to restructure their strategic asset allocations, terminate investment managers and search for new managers.

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Jim Sinclair’s Commentary

Gold has ethics for one major reason: because there is no liabilities attached to gold as there are to all Fiat currencies in one degree or another.

The Ethics of Gold
Tuesday, 24 August 2010  at  11:14, By Ron Robins, Founder & Analyst – Investing for the Soul

The rising price of gold stands as the ethical barometer of the mismanagement of our fiscal, monetary, and currency systems. Gold is in the early stages of re-asserting its historic role of helping to bring order to monetary and currency chaos. Its price has risen more than fourfold over the past ten years as a result of investors anticipating the predictable financial and currency chaos we have today—and what is likely yet to come.

The central banks and government treasuries, particularly those of the US, Europe, and Japan, have been weakened and our trust in them eroded. For decades they assured us that only they and their paper currencies and fractional reserve banking systems can keep our economies growing forever. They are now failing for all to see. And before the ships of state sink and economies further submerge they bail out their banking friends.

The monetary and currency systems and organisations responsible for them are deteriorating because they essentially lack an ethical standard. That is not to say that most individuals in these organisations are unethical. It is that as organizations they implemented policies over the past several decades that knowingly—or they should have known—would eventually lead to great financial and economic hardship.

One such policy was the encouragement of debt creation way beyond income or economic growth. When this policy failed, it led to tens of millions of people losing their jobs globally, millions losing their homes, and retirees in developed countries losing their savings as interest rates were reduced to near zero. It is in this sense that these organizations were, and are, without an ethical standard.

To rise to the top among many of these banking and financial organizations, requires not only brilliance, but usually subservience to base instinctual values of status and greed.

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Jim Sinclair’s Commentary

If the S&P wants to instantaneously disintegrate, there is a simple way – downgrade the USA.

I can see the Navy Seals storming their office.

S&P Says US Should Act to Protect AAA-Rating: Report
Published: Thursday, 26 Aug 2010 | 6:27 AM ET

The United States government needs to take steps to preserve its top AAA-rating, a Standard & Poor’s Ratings (S&P) official told Dow Jones newswire in an interview published on Thursday.

Financial Crisis

The measures taken in response to recommendations President Barack Obama’s commission on fiscal responsibility would be crucial in the view S&P takes on the U.S. credit rating, he said.

"It is very important for the credit standing of the United States that the Congress considers very carefully what the fiscal commission proposes," John Chambers, chairman of S&P’s sovereign rating committee, was quoted as saying.

"It is very important for Congress to take the required steps."

S&P maintains the United States’ top AAA rating with a stable outlook, meaning there is not a significant chance of a change in the near future.

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Governments DO NOT default, they reschedule and declare that a solution. Problem solved.

Of course that is BS, but it takes awhile for the market to figure it out.

Morgan Stanley Says Government Defaults Inevitable
By Matthew Brown – Aug 25, 2010 12:10 PM MT

Investors face defaults on government bonds given the burden of aging populations and the difficulty of increasing tax revenue, according to a Morgan Stanley executive director.

“Governments will impose a loss on some of their stakeholders,” Arnaud Mares in the firm’s London office wrote in a research report today. “The question is not whether they will renege on their promises, but rather upon which of their promises they will renege, and what form this default will take.” The sovereign-debt crisis is global “and it is not over,” he wrote.

Rather than miss principal and interest payments, governments may choose a “soft” default in which they pay back debts with devalued currencies resulting from faster inflation or force creditors to take lower returns, Mares said in an interview.

Borrowing costs for so-called peripheral euro-region nations from Greece to Ireland surged today, resuming their ascent on concern that governments won’t be able to cut their budget deficits. Standard & Poor’s lowered Ireland’s credit rating yesterday on the rising cost of supporting nationalized banks.

Population trends may be a better predictor of the ability to meet obligations rather than debt as a percentage of gross domestic product, which doesn’t reflect governments’ available revenue and is “backward-looking,” Mares wrote.

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Jim Sinclair’s Commentary

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- Housing Market Stress Deepens Irrespective of Wild Reporting 
- Durable Goods Orders Almost Flat Despite Aircraft Boost 
- Census Payrolls Down 116,000 in August

"No. 318: July Home Sales, Durable Goods Orders "
http://www.shadowstats.com/article/598

Jim Sinclair’s Commentary

The big players always know the real estate loans were non-recourse loans.

You will see large walk-aways voluntarily entered into as this market is more professional than housing.

A few more of the big boys bite the dust and the wave has crested. Down she comes.

Commercial Property Owners Choose to Default
By KRIS HUDSON And A.D. PRUITT

Like homeowners walking away from mortgaged houses that plummeted in value, some of the largest commercial-property owners are defaulting on debts and surrendering buildings worth less than their loans.

Companies such as Macerich Co., Vornado Realty Trust and Simon Property Group Inc. have recently stopped making mortgage payments to put pressure on lenders to restructure debts. In many cases they have walked away, sending keys to properties whose values had fallen far below the mortgage amounts, a process known as "jingle mail." These companies all have piles of cash to make the payments. They are simply opting to default because they believe it makes good business sense.

"We don’t do this lightly," said Robert Taubman, chief executive of Taubman Centers Inc. The luxury-mall owner, with upscale properties such as the Beverly Center in Los Angeles, decided earlier this year to stop covering interest payments on its $135 million mortgage on the Pier Shops at Caesars in Atlantic City, N.J.

Taubman, which estimates the mall is now worth only $52 million, gave it back to its mortgage holder.

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The smoke and mirrors modest upturn in economic statistics primarily due to the FASB capitulation in April of 2009 comes to an end as the Ski Jumper gets airtime.

All the MOPE about recoveries and double dip comes into question with the violent nature of major economic statistic dissolution.

Central Banks around the world, knowing full well that the assets of financial entities are as weak as they were during the 2008-2009 crash, immediately revert to QE to infinity. This lights fires to the Western World currencies making the dollar weak and the euro outrageously volatile. This gives rise to Currency Induced Cost Push Inflation, better known as the Yellow Brick Road to Hyper Inflation. Central banks are depicted as the devils as QE to infinity is thrown onto the pile in hopes of another illusionary soft landing.

This can easily happen so fast that your hair will catch fire and you get whiplash trying to catch it. When this event occurs it will be lightening speed. The evil deeds are done and there are no exits. Gold will trade at $1650 and beyond.

Jim Sinclair’s Commentary

Two hedgies short of gold and gold shares?

Jim Sinclair’s Commentary

Today’s exercise in MOPE (Management of Perception Economic) and plausible denial, also known as “BS.”

Fed divided over policy direction, WSJ reports
By MarketWatch

TEL AVIV (MarketWatch) — At its Aug. 10 meeting, at least seven of 17 Federal Reserve officials opposed or hesitated over the decision to stimulate the economy by keeping the Fed’s securities portfolio from winding down, The Wall Street Journal reported Tuesday.

At issue was whether to reinvest principal payments to the Fed back into the markets.

The Wall Street Journal report said Fed members were divided into two camps.

New York Fed President William Dudley, Boston Fed President Eric Rosengren, San Francisco Fed President Janet Yellen and others were concerned about the economy and "more inclined to act," it said.

But Fed Gov. Kevin Warsh, Dallas Fed President Richard Fisher and other officials were concerned about the effectiveness of such a move or the message it would send to markets, the report said.

Fed Chairman Ben Bernanke pushed for the move and ultimately prevailed, the Journal reported, based on interviews with several participants at the meeting.

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Jim Sinclair’s Commentary

This is a straw man to hold up and knock down, a common political strategy.

Note that the so called fight is over banks. What you want to see is the non-banks that received bailouts.

Fed Loses Bid to Review Bailout Disclosure Ruling
By Grant McCool and Jonathan Stempel
August 23, 2010

NEW YORK (Reuters) – The Federal Reserve will have to appeal to the Supreme Court if it wants to avoid having to disclose details of its emergency lending programs to banks bailed out with taxpayer money during the financial crisis.

The U.S. 2d Circuit Court of Appeals denied the Fed’s motion on Friday to rehear the case in which Bloomberg LP, the parent of Bloomberg News and News Corp’s Fox News Network sought information on the U.S. central bank’s emergency lending programs that began in late 2007.

The programs, designed to shore up the financial markets, more than doubled the Fed’s balance sheet to well over $2 trillion, especially in the wake of the September 2008 collapse of Lehman Brothers Holdings Inc.

The Fed maintained that disclosing the information sought by the news outlets under the Freedom of Information Act (FOIA) could stigmatize banks, causing a loss of confidence that could lead to deposit runs and the demise of some lenders.

The Clearing House Association, a group of major U.S. and European banks, supported the Fed’s efforts.

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Jim Sinclair’s Commentary

Under the new circumstances, four US banks, including names of great familiarity to the community have applied to open a branch in Iran.

Foreign Banks Welcome
21 April 2009

For the first time since the 1979 Islamic Revolution, Iran is set to allow foreign banks to establish branches in the country and engage in normal banking operations.

According to Presstv, Article 44 of the Constitution had heretofore placed banking activities exclusively in the hands of government. In tandem with the Law on Usury Free Banking Operations, these two measures effectively blocked foreign banking operations from conducting business in the mainland.

A handful of foreign bank branches and representative offices extant in the country were allowed to undertake administrative and coordinative activities but were not permitted to open customer accounts, receive deposits or extend normative facilities. Foreign banks, under special conditions, were allowed to function in the free zones.

With the long-awaited privatization law having already come into force in the summer of 2008, allowing the normal functioning of foreign banks in Iran is viewed as a major economy boosting initiative by the Central Bank of Iran (CBI)Central Bank of Iran (CBI)Loading….

The rules for regulating the activity of foreign banks are set forth in four parts and 13 articles in the decree dated March 18, 2009 by the Council of Ministers and titled The Executive Bylaw of the Manner of Establishment and Operations of Foreign Bank Branches in Iran.

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Jim Sinclair’s Commentary

David Rosenberg has a higher price objective for gold than I do.

Here is a note for the deflationists out there that do not understand Currency Induced Cost Push Inflation.

Economy Caught in Depression, Not Recession: Rosenberg
Published: Tuesday, 24 Aug 2010 | 11:23 AM ET

Writing in his daily briefing to investors, Rosenberg said the Great Depression also had its high points, with a series of positive GDP reports and sharp stock market gains.

But then as now, those signs of recovery were unsustainable and only provided a false sense of stability, said Rosenberg.

Rosenberg calls current economic conditions "a depression, and not just some garden-variety recession," and notes that any good news both during the initial 1929-33 recession and the one that began in 2008 triggered "euphoric response."

"Such is human nature and nobody can be blamed for trying to be optimistic; however, in the money management business, we have a fiduciary responsibility to be as realistic as possible about the outlook for the economy and the market at all times," he said.

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Jim Sinclair’s Commentary

Please refer to the three Illustrations and explanations thereof posted today.

Any questions?

Dollar Plunges As Everyone Now Figures Return Of Quantitative Easing Is A Done Deal
Joe Weisenthal | Aug. 24, 2010, 10:45 AM

Today the weak economic data is not prompting a flight-to-the-dollar.

Today the weak economic data is causing dollar selling, because it’s becoming crystal clear to folks, as ForexLive notes, that quantitative easing II is now a done deal. No more baby steps or holding the balance sheet steady. There’s no excuse for the Fed Board of Governors to be have an unclear picture of the economy’s direction anymore.

And we may not have to wait for very long. Bernanke speaks this Friday at Jackson Hole, and you can figure he’ll be revising that speech now until then with every bad data point that comes across to get exactly the right message to the market.

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Jim Sinclair’s Commentary

Only one of the reasons that "QE to Infinity" is the only political choice that can be made.

Things are moving fast.

Gold will trade at $1650 and above.

The trillion dollar bailout you didn’t hear about –Commercial real estate values plummet again yet banks hide losses. A $3.5 trillion financial disaster in the making. We are now proud owners of an AMC theater and Chick-fil-A.

The latest data on existing home sales should tell you exactly where we are in this so called recovery.  Average Americans are unable to purchase big ticket items without massive government subsidies.  It is also the case that all the too big to fail banks are standing only because of the generous support of taxpayer money.  Without large tax credits and the Federal Reserve buying down mortgage rates the housing market is extremely weak.  Yet very few of the housing “analysts” actually bother to ask why they are weak in the first place.  The employment market is in disarray and wages have fallen for everyone outside of the top 1 percent of income earners.  The bailout fatigue is running out of steam but banks are using clandestine methods to offload trillions of dollars of commercial real estate to taxpayers.  The next giant bailout is already happening but you probably haven’t heard about it.

Commercial real estate values continue to slide:

Source:  MIT

For the latest month of data prices fell an additional 4 percent.  Now this is coming at a seasonal time when real estate values usually see price increases.  But people are pulling back and spending less money on discretionary items.  This is happening for a couple of reasons including the fact that wages have been stagnant for over a decade and the underemployment rate is still near peak levels.  Commercial real estate in places like Las Vegas has crashed because who is out buying million dollar condos in this market?  Very few and that is why you are seeing many places having vacancy rates of 50, 60, or even 70 percent.

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Volcker won it all and Greenspan gave it all away.

China has it now.

Jim Sinclair’s Commentary

Adam Ferguson is the author of When Money Dies, which is about hyperinflation during the Weimar Republic.

Even though the reporter excerpts to modify the significance of Currency Induced Cost Push inflation of Weimar, he fails. The comparison between Weimar and the path the West is on is undeniable. The results will be comparable.

Under that scenario both the Dow and Gold will go ballistic with gold first.

Lunch with the FT: Adam Fergusson
By Jonathan Ford
Published: August 20 2010 22:30 | Last updated: August 20 2010 22:30

As befits a man who has written an acclaimed book about money and prices, Adam Fergusson starts our encounter by eyeing the menu beadily and asking who will be paying the bill. “Milton Friedman said the most efficient way of spending money is to spend your own, and the least efficient way is to spend other people’s,” he says. “If you go out to lunch and have to pay your own bill, you have what you want and can afford. If someone else is paying, you may as well have the lobster.”

As I confirm that the FT will be paying, we scan the menu but, alas, there is no lobster. I am meeting Fergusson at Belvedere, a slightly gloomy restaurant in the middle of Holland Park, close to where he lives in west London. It is a sultry day and we initially consider sitting outside on the terrace, but the closely packed tables are already filling up and it is too noisy. So we settle down, virtually the only diners in the shadowy and rather formal interior.

Fergusson, 78, a former journalist and politician, is enjoying an unexpected literary revival thanks to the republication last month of a book he wrote 35 years ago – a history of the hyperinflation in 1920s Weimar Germany. When Money Dies tells the story of Germany’s economic collapse after the first world war, which culminated in the mind-boggling inflation of late 1923 – a dreadful time when visitors to Berlin saw people starving in the streets and the number of marks to the pound was at one point equivalent to the number of yards from the earth to the sun.

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Jim Sinclair’s Commentary

This is a revealing video and article. It speaks directly to inevitable Currency Induced Cost Push Inflation that few understand.

Gold will trade at $1650 and above.

"Enron Accounting" Has Bankrupted America: U.S. Deficit Really $202 Trillion, Kotlikoff Says
Posted Aug 23, 2010 07:30am EDT
by Peter Gorenstein

The Congressional Budget Office (CBO) forecasts the U.S. budget deficit will hit $1.3 trillion this year. An astronomical figure, to be sure, but that’s lower than was projected in March. It’s also less than last year’s record $1.41 trillion deficit, which was close to 10% of GDP.

And, that’s the good news.

As the deficit grows so does the national debt, which is currently more than $13.3 trillion, according to official figures.

But the situation is actually much, much worse, according to Boston University economics professor Laurence Kotlikoff.

“Forget the official debt,” he tells Aaron in this clip. The “real” deficit – including non-budgetary items like unfunded liabilities of Medicare, Medicaid, Social Security and the defense budget – is actually $202 trillion, the professor and author calculates; or 15 times the “official" numbers.

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Jim Sinclair’s Commentary

Eventually yes, but for now MOPE is directed at the weak euro states to divert this occurrence.

Hussman: Bernanke’s Quantitative Easing Is About To Trigger A Collapse In The US Dollar
Joe Weisenthal | Aug. 22, 2010, 5:29 PM

In his latest weekly letter, John Hussman warns of an imminent and disorderly collapse of the US dollar, courtesy of Ben Bernanke’s move towards more quantitative easing.

The whole thing is worth reading, but here’s the key part of it:

From the standpoint of the two parity conditions, the very long-term implication of quantitative easing is a gradual devaluation of the U.S. dollar (an increase in the dollar price $/FC of foreign currency). If this increased inflation risk was reflected in interest rates (so that real interest rates were held constant), the U.S. dollar would simply move along that gradually sloped PPP line, and likewise, foreign currencies would gradually appreciate against the dollar.

However, because of economic weakness and credit strains, coupled with the demand for Treasuries by the Fed, quantitative easing instead moves U.S. interest rates in the opposite direction, falling rather than rising. From the standpoint of interest rate parity, capital market equilibrium then requires the U.S. dollar to depreciate immediately, by a sufficient amount to set up the expectation of future appreciation in order to offset the shortfall of U.S. interest rate returns.

In short, quantitative easing is likely to induce what the late MIT economist Rudiger Dornbusch described as "exchange rate overshooting" – a large and abrupt shift in the spot exchange rate that occurs in order to align long-term equilibrium in the market for goods and services with short-term equilibrium in the capital markets.

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Jim Sinclair’s Commentary

Retirement age at 96 and benefits of $1 per month should save social security.

Social Security Cuts Weighed by Panel
* AUGUST 20, 2010
By LAURA MECKLER

A White House-created commission is considering proposals to raise the retirement age and take other steps to shore up the finances of Social Security, prompting key players to prepare for a major battle over the program’s future. The panel is looking for a mix of ideas that could win support from both parties, including concessions from liberals who traditionally oppose benefit cuts and from Republicans who generally oppose higher taxes, according to one member of the commission and several people familiar with its deliberations.

In addition to raising the retirement age, which is now set to reach age 67 in 2027, specific cuts under consideration include lowering benefits for wealthier retires and trimming annual cost-of-living increases, perhaps only for wealthier retirees, people familiar with the talks said.

On the tax side, the leading idea is to increase the share of earned income that is subject to Social Security taxes, officials said. Under current law, income beyond $106,000 is exempt. Another idea is to increase the tax rate itself, said a Democrat on the commission.

Even before the commission settles on a plan, many liberals are vowing to block any cut in retirement benefits. But the White House and the powerful senior group AARP appear open to a deal.

Republicans on the commission have mostly held their fire. One of them, Rep. Jeb Hensarling (R., Texas) said Thursday he opposes tax increases but wouldn’t rule anything out at this stage in the discussions. Otherwise, he said, "the thing blows up before it has a chance to work."

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