Volume continues to shrink as it markets time at support. This bullish tape awaits a technical trigger.

Japanese Yen (FXY):

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Quick Note on Gold Wave Analysis
CIGA Eric

Please do not confuse my Gold Wave Analysis with Elliot Wave analysis. It is completely different.

Cycles, energy of the trend, and movement of the leveraged money flows.

ABCD is merely a designation of the natural cycles within the gold trend. It also considers the energy within the tape to forecast both duration and magnitude. In other words, it produces a time based forecast that is consistent with the energy of the previous cycles and direction of the leveraged money flows.

The Gold Wave Analysis suggests a mean, average window, bottom around May (plus or minus a few months). Cycles influence the money flows, and the money flows can slightly modify the cycle timing. This feedback loop is important, so they must be watched together.

Further Comments and Charts:
US dollar Diffusion Index
Gold Diffusion Index

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Gold’s cross-currency strength signals its evolution
CIGA Eric

Gold’s rally to record highs in euro and sterling terms and the resilience of spot prices in the face of a rising dollar is sign-posting the metal’s broadening insurance appeal, as sovereign debt fears shift to the fore.

Absolutely nothing new here. Jim, Dan, and I, as well as others have recognized rising global gold prices for years. What’s interesting is that Reuters, a conduit, is recognizing it. Always watch for subtle changes.

Source: reuters.com

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Gold to Silver Ratio
CIGA Eric

Gold to Silver Ratio (GSR) represents on of the oldest measures of risk aversion to risk.

The GRS is illustrating the depressionary chop. Liquidity trade on, F-TV scream bull market, liquidity trade off, and the wheels fall off with everyone milling around in disbelief.

I characterize this chop with stocks trading within a depressionary box. Lots of drama, arm waving, but overall its nothing more than directionless chop.

Did a new down trend, liquidity trade on, start in 2009? Time and leverage flow support that conclusion. Most likely we’ve enter a consolidation range shaded green. A break of the orange up trend line would provide more clarity.

Gold to Silver Ratio (GSR) And Gold to Silver Ratio:

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There an old Irish proverb that says,

If you’re not strong you’d better be clever.

When you’re fighting the paper monster, you better be clever.

The time window has closed on the C-wave advance. The duration of the run was a bit longer than the mean estimate, but it did not produce expected gains.

The relatively weak C-wave advance should produce a weaker D-wave decline since the energy within the tape is largely proportional. The DIWA1 column indicates the Gold Diffusion Index has at 77% has already exceeded the mean average of the previous waves. This high reading, like basketball players battling to maintain position for a rebound, reflects the intensity of flows before the next advance.

Will the Diffusion Index post a higher reading or a double spike, as price chops toward the projected mean of $983? Maybe the paper monster will have to be satisfied with $1,058. There’s huge support around $1025. Whatever it’s going to do, it better do it fast because time is watching and waiting.

Time is the most important indicator. When time is up the market must change trend. W.D. Gann.

The mean window for time is early May, which by no accident comes very close to the projected dates provided by Martin Armstrong.

Gold Waves Analysis:

Gold London P.M. Fixed and the Commercial Traders COT Futures and Options Gold Diffusion Index (DI):

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Jim Sinclair’s Commentary

CIGA DGC sends us his thoughts.

M O P E
Management of Perspective Economics
+
H O P E
Helping Our Ponzi Exchanges
=
D O P E
Destroying Other Peoples’ Equity

For those that accept the dollar, or any fiat money, as a safe haven during times of crisis, I suggest a review of the global fiat gold prices since start of the third Great Depression between 1998-2001.

A few important conclusion from the following charts:
(1) The price of gold is rising against all fiat money since 1998-2001. This suggests that gold, despite claims to the contrary, is the ultimate safe haven.
(2) The greater the angle of ascension of most sustainable up trend, the greater the stress on the currency. In other words, the greater the angle, the greater the devaluation and poorer the safe haven safe haven.
(3) The currency with the smallest, comparable angle of ascension is the best safe haven fiat currency.

Australian Dollar Gold:

British Pound Gold:

Canadian Dollar Gold:

Euro Gold

Krona Gold:

Real Gold:

Renminbi Gold:

Rouble Gold:

Rupee Gold:

Swiss Franc Gold:

US Gold

Won Gold:

Yen Gold:

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Dear Jim,

Its taking shape… Euro version of the FRGCR in embryonic form?

Regards,
CIGA Pedro

Germany considers c.bank gold reserves for EMF-paper
Sat Mar 13, 2010 12:32pm GMT

BERLIN, March 13 (Reuters) – Germany is considering the possibility of euro zone countries using their central banks’ gold reserves to back a European Monetary Fund, German magazine Focus reported on Saturday.

The German Finance Ministry declined to comment on the report by Focus, which did not specify its sources.

"A proposal from the finance ministry suggests pooling the gold reserves of the former central banks of euro zone countries in a stabilisation fund," Focus wrote.

According to Focus, Greece still has around 112 tonnes of gold, while the German Bundesbank has 3,407 tonnes with a market value of around 90 billion euros.

German Finance Minister Wolfgang Schaeuble on Friday repeated his call for a fund which could, as a last resort, offer help to euro zone states facing bankruptcy.

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The following FDIC press release is remarkable in a number of ways:

1. We now have a new form of US Government Agency debt, namely, FDIC-backed residential mortgage backed securities (“RMBS”).

2. The $1.8 billion of notes are backed by loans with “aggregate unpaid balances of approximately $3.6 billion.” Translation: they had to take 50 cents on the dollar to unload these loans.

3. “The timely payment of principal and interest due on the notes are guaranteed by the FDIC, and that guaranty is backed by the full faith and credit of the United States.” Translation: We the People are on the hook for these RMBS.

Not even Fannie Mae and Freddy Mac RMBS came with such a specific guaranty of backing by the US taxpayer.

If there was still any doubt that the US Taxpayer will be on the hook for any losses the FDIC cannot absorb, that has now been put to rest. QE to Infinity!

Respectfully yours,
CIGA Richard B.

FDIC Closes on Sale of $1.8 Billion of Notes Backed by Mortgage-Backed Securities
Transaction Adds Liquidity to DIF and Stimulates Investor Demand
FOR IMMEDIATE RELEASE
March 12, 2010

The Federal Deposit Insurance Corporation (FDIC) today closed on a sale of notes backed by residential mortgage backed securities (RMBS) from seven failed bank receiverships. The sale was conducted through a private placement priced and allocated on March 5th. The transaction was met with robust investor demand, with over 70 investors participating across fixed and floating rate series. The investors included banks, investment funds, insurance funds and pension funds. All investors were qualified institutional buyers.

The $1.81 billion of notes is backed by 103 non-agency residential mortgage-backed securities. The aggregate unpaid balance of the 103 securities was approximately $3.6 billion at the time of the sale. The FDIC retained an equity interest in each series.

The transaction features two series of senior notes, each backed by a separate pool of RMBS. The larger series of approximately $1.3 billion, is based on option ARMS and has a floating rate tied to the one-month LIBOR. The smaller series of $480 million is based mostly on fixed-rate RMBS and pays a fixed rate. Both series priced at rates comparable to Ginnie Mae collateralized mortgage obligations.

The timely payment of principal and interest due on the notes are guaranteed by the FDIC, and that guaranty is backed by the full faith and credit of the United States.

Full release:
http://www.fdic.gov/news/news/press

Retail Sales in U.S. Unexpectedly Rose in February (Update2)
CIGA Eric

Sales at U.S. retailers unexpectedly climbed in February as shoppers braved blizzards to get to the malls, signaling consumers will contribute more to economic growth.

More consumption driven growth! Like historical (nominal) comparisons of net worth and equity prices, retail sales comparisons are also meaningless because the currency is not a stable measuring stick over time.

Even real, or CPI adjusted sales prices are not comparable because the CPI is not a stable measuring stick either.

Real or CPI-Adjusted Retail Sales (RRS) and YOY Change:

The only unbiased trend is gold-adjusted retail sales. The effects of currency devaluation are removed when retail sales are converted into ounces purchased. This number is historically comparable and shows no unexpected monthly or year-over-year gain.

Gold-Adjusted Retail Sales (RSGLDR) and YOY Change:

Source: bloomberg.com
Source: shadowstats.com

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Picking a Bottom
CIGA Eric

Have we witnessed the birth of a new secular bull market in real estate and stocks as suggested on F-TV? No. To pick bottoms, you must love when everyone else hates, and hates when everyone else loves. The trick is learning how to quantify that axiom.

Market Value of Residential Real Estate As A % Total Assets And Corporate Equities and Mutual Funds As A % Total Assets:

Residential Real Estate Affordability has improved. I suspect, however, that is will improve a lot more in the next five years.

Residential Real Estate Affordability: Market Value of Real Estate As A % Disposable Personal Income

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Tropicana raising orange juice prices
CIGA Eric

PepsiCo Inc (PEP.N) will downsize its 64-ounce cartons of Tropicana orange juice to 59 ounces but leave the price unchanged, after cold weather damaged Florida’s orange crop.

It’s always the weather. The weather shrinks the size that never seems to return to normal after the weather related effects subside.

There’s no inflation, but the size of everything from ice cream to orange juice cartons continues to shrink at the grocery store. Maybe when our portion sizes are the size of a Dixie cup people will equate the ever shrinking shelf size as a consequence of devaluation.

Source: reuters.com

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Jim Sinclair’s Commentary

What John cannot show you, but probably does not need to.

Household leverage is rolling over, and this will be difficult to buffer. The voting public will scream bloody murder. How much will they be willing to print? The next hemorrhage phase could be equally big.

COT U.S. Dollar Diffusion Index
CIGA Eric

The up trend in the dollar diffusion index has failed. Ready or not, against the prevailing consensus/hype, the trend line roll over implies: (1) a lower dollar, (2) higher gold, (3) and a return of the giddiness of the carry trade on Wall Street in the near future.

U.S. Dollar Index and the Commercial Traders COT Futures and Options U.S. Dollar Diffusion Index (DI):

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Flow of Funds Report
CIGA Eric

There’s always some interesting trends reveals by the flow of funds report. While F-TV talks of recovery and new bull market, they ignore the fact that total credit market debt as percentage of GDP at 362.5% remains only a small down tick from the all-time in 2009.03 of 372% and well above the second Great Depression high of 325%. This suggest that debt liquidation, a necessary precursor to the next secular recovery, has been minimal at best.

Total Credit Market Debt As A% GDP:

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Jim Sinclair’s Commentary

Please read this is OUTSTANDING analysis of bank closings by CIGA Richard. Please note the most salient point, which is a direct gift of FASB’s capitulation, which allowed for rampant overvaluation of assets on the books of ALL USA financial entities. This once again made balance sheets and earnings statements world class dangerous cartoons.

Dear Jim,

Between Friday, February 26, 2010 and Thursday, March 11, 2010, the FDIC announced the closings of seven relatively small banks. That brought the year’s total (so far) to 27.

The seven banks had combined assets of approximately $2.1 billion and combined deposits of approximately $1.68 billion. The FDIC’s estimated cost of the closures was $432.7 million – about 26% of deposits.

While that cost figure is certainly not the worst seen in this crisis, there continues to be a huge disparity between the stated values of the closed banks’ assets and their market values estimated by the FDIC. Taken as a whole, the estimated market value of the seven banks’ assets ($1.25 billion) was only about 59% of the value claimed.

The largest of the banks closed, Rainier Pacific Bank of Tacoma, Washington, had stated assets of $717.8 million and deposits of $446.2 million, and the FDIC’s loss estimate was $95.2 million. That means the FDIC valued Rainier’s assets at about $351 million, only 49% of the value claimed.

Similarly, Centennial Bank of Ogden, Utah, had stated assets of $215.2 million and deposits of $205.1 million, and the FDIC’s loss estimate was $96.3 million. That means the FDIC valued Centennial’s assets at $108.8 million, only 51% of the value claimed.

Yesterday’s announcement of the closing of Liberty Pointe Bank of New York, NY, was unusual in that it came on a Thursday. It will be interesting to see what Friday evening brings.

Respectfully yours,
CIGA Richard B.

Dear Jim,

Does this look sustainable? Don’t worry, Washington will save us!

CIGA Marc

The U.S. trade deficit unexpectedly shrank in January, reflecting a big drop in imports of oil and foreign cars. American exports also fell, a potential blow to hopes that the economic recovery will be aided this year by U.S. sales abroad.

A country that habitually consumers more than it produces, the definition of structural deficits, will always see its trade deficit decline when the economy slows. If this was unexpected, then the strength of the economy going forward should be unexpectedly weaker.

The Obama administration is also hoping to get a boost in exports from a fall in the dollar’s value against the Chinese yuan. It has been lobbying China to allow the yuan to rise in value against the dollar, responding to complaints from American manufacturers that China is unfairly manipulating its currency by holding down the yuan’s value to gain trade advantages.

No worries, devaluation, not investment in new plant, equipment and innovation, will save us. Unfortunately, Americans, sold on the idea that the worse is over, thus, by extension a recovery is around the corner, will have to experience the harsh reality of scrapping along the bottom for many years. The imports to exports trend from 1991-1997 gives a similar, but smaller model of the scrapping yet to come.

Import to Export Ratio:

And while we wait, import prices, similar to late 2007 to early 2008 have reached double digit growth rates in January. Last time this happened the stock market was in process of rolling over.

Import and Export Price Change YOY:

Source: finance.yahoo.com

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Jim Sinclair’s Commentary

Here are my comments on the algorithm driven gold gun slingers and semantic fundamentalists:

It is becoming evident to anyone with a brain that the ravingly bullish end of year televised economic pep rally was pure propaganda.

Enter the proverbial question of deflation or inflation, which is semantics only. Hyperinflation is a currency event and not an economic event. Therefore it can occur under any condition that causes a flop in confidence.

That condition is building and building in the Western world as the lies become more evident everywhere.

The money managers and computer nerds have been selling gold for four days. It was evident on the first day as the dollar fell and gold failed to react much at all.

They will be back buying at higher prices. Gold is going to $1650 and higher.

Half of Kansas City’s schools to close by fall
CIGA Eric

The school board narrowly approved the plan Wednesday night to close 29 of the district’s 61 schools to try to stave off bankruptcy. The closures have angered many parents, students and teachers, but administrators say they had no choice because without them, the district would have been in the red by 2011.

The public, readers, inherently know that the future greatness of our country will be defined by our children and their children’s children. Numerous cities, not limited to Kansas City, are making tough choices, such as wholesale school closings to ensure their financial survival. Yet, as many world leaders have rushed to support the OTC derivative winners, while the masses retreat into survival mode, what message are we sending to the future generations? For me, this stuff is largely business, but this never implies that I am not embarrassed as citizen about the choices being made.
Source: news.yahoo.com

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Trade deficit shrinks as auto and oil imports drop
CIGA Eric

The U.S. trade deficit unexpectedly shrank in January, reflecting a big drop in imports of oil and foreign cars. American exports also fell, a potential blow to hopes that the economic recovery will be aided this year by U.S. sales abroad.

A country that habitually consumers more than it produces, the definition of structural deficits, will always see its trade deficit decline when the economy slows. If this was unexpected, then the strength of the economy going forward should be unexpectedly weaker.

The Obama administration is also hoping to get a boost in exports from a fall in the dollar’s value against the Chinese yuan. It has been lobbying China to allow the yuan to rise in value against the dollar, responding to complaints from American manufacturers that China is unfairly manipulating its currency by holding down the yuan’s value to gain trade advantages.

No worries, devaluation, not investment in new plant, equipment and innovation, will save us. Unfortunately, Americans, sold on the idea that the worse is over, thus, by extension a recovery is around the corner, will have to experience the harsh reality of scrapping along the bottom for many years. The imports to exports trend from 1991-1997 gives a similar, but smaller model of the scrapping yet to come.

Import to Export Ratio:

And while we wait, import prices, similar to late 2007 to early 2008 have reached double digit growth rates in January. Last time this happened the stock market was in process of rolling over.

Import and Export Price Change YOY:

Source: finance.yahoo.com

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Jim Sinclair’s Commentary

Direct bidders is simply QE in Camouflage.

30-Year Treasury Auction Results
CIGA Eric

Wow! 29.6% of the accepted offers were taken down by direct bidders. For further discussion search auction results, or click. Direct bidders are starting to dominate the auctions across the yield curve.

30-Year Auction Results:

Source: treasurydirect.gov

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Derivative CDS mess
CIGA Eric

Let’s not play babe in the woods here. The problem not limited to Greece, Spain, or the EU. Derivatives have infected the balances sheets of corporations, nations, states, and municipalities across the globe.

The solution will be bailouts – either transparent or opaque. Little respect or consideration will be given to preservation of purchasing power of the currencies denominating those bailouts. This is why gold is rising, and when the public begins to catch on en mass, it will continue to rise much higher for years to come.

Forget Greece: Italy derivatives bomb also ticking

Financial markets are gripped by the role derivatives have played in Greece’s debt crisis, but Italy also has a derivatives time bomb, and hundreds of cities are in the 24 billion euro blast zone.

EU prepares in case Greek woes spread to Spain

If Greece’s debt crisis is giving the European Union a headache, it is minor compared to the pain it will suffer if a large member state such as Spain sinks into similar trouble.

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NYSE Composite Average
CIGA Eric

Options expiration is coming next week. Trading leading up to and during expiration dates tend to push to the extremes. As a result, technical interpretations during these windows can be quite difficult. Retail money can get confused by the technicals caused by the confluence of expiration flows.

As the equity trees continue to reach endlessly higher into the sky, caution is still warranted. A few days ago I pointed out that the NYSE put/call ratio was 0.67. As of yesterday’s close, the number has dropped to 0.61. This means for every put traded, there were 1.64 calls traded. This low number, which can push below 0.5, reflects the equity trees pushing higher into the sky. This is a warning flag.

In addition, the energy of the tape since February has been anemic. An indicator called REV(E), cumulative measure of energy behind the tape, illustrates the divergence of price with the October and January highs. Today’s REV reading lags behind not only the January but also October high. This serial, double divergence with price and tape energy is troublesome. The single divergence foreshadowed the equity correction in January. Skepticism towards price must reign as long as these divergences exist.

NYSE Composite with Exchange Volume:

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Jim Sinclair’s Commentary

CIGA Bernie comments on the financial propaganda of yesterday:

Jim,

IN THE NEWS:

US budget deficit hits record high in February

WASHINGTON: The US government registered a record budget deficit in February, the 17th consecutive month of running in the red, the Treasury said on Wednesday.

IN THE GOOD NEWS:

The reading, however, was slightly better than the consensus analyst forecast of a deficit of 222 billion dollars.

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CIGA Bernie

Dear Jim,

"Whether CDS swaps make much difference is questionable. The contracts are traded between banks or funds. They have little impact on the underlying debt, except to create mood music in the markets."
– AEP. Telegraph

He’s categorically wrong here, isn’t he? The CDS market allows the specs to make money shorting bonds and being long the CDS, there-in taking a country down at a profit, doesn’t it? I thought that is the main objection to the CDS market.

CIGA Keith

Dear Keith,

Wrong is the understatement of the age. Prepare to see a lot of propaganda out on the street on how CDS are kind and caring instruments.

Regards,
Jim

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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Here is another way to look at "QE to infinity or the Fed is history."

Stock investors ask: What’s the next big thing?
CIGA Eric

Stocks have lost some of the momentum that propelled the Dow Jones industrials up 61 percent from 6,547, its close on March 9, 2009. That’s natural — bull markets tend to slow down as they head into their second year. But the economic recovery has also been a bit of a drag on stocks. And so investors are waiting for signs that the economy is ready to put up some solid, sustainable growth numbers.

The media is pushing hard to doing more critical thinking for investors. The game of perceptions is so important that the current rise in stocks couldn’t be anything but a bull market. Yet, hours before this headline, another newsflash suggest that it is too early to clamp down on spending just yet. In other words, this bull market is so weak that a comparison to 1936 to 1937 monetary and fiscal environment, and its "mistakes" were necessary.

White House’s Romer: Too soon for spending clamp-down

The gaping U.S. budget deficit is cause for concern but clamping down on spending immediately would be "pound-foolish" and derail the recovery, a top White House economic adviser said on Tuesday.

The comparison to 1936 through 1937 was surprisingly accurate for headline rhetoric. Still no amount of spending can provide the foundation for secular economic recovery. Previous commentaries Dow 10,000 is meaningless and S&P 500 will finish 2010 poll results discuss why. The illusion created by devaluation will always be smashed by the stark reality of the consequences that result from it. You must stand with resolve through understanding or spin will wear you down, find your weakness and exploit it.

Source: finance.yahoo.com

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US 10-Year Money Flows
CIGA Eric

The US has issued more debt at shorter maturities as foreign lenders continue shorten duration over the years. This trend should continue this week. As a result, tracking the money flows of 7-10 year notes (and shorter maturities) has become just as important as following those of the long bond market.

Money flows have reversed as prices pushed higher in response to the previous bullish setup. If outflows continue, a bearish setup will be generated at what could very well be a lower high.

US 10 Year (7-10 Years) and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:

Source: treasurydirect.gov

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QE to infinity or the Fed is history.

Draining reserves during this administration is a sick joke.

Regards,
Jim

Program Will Pay Homeowners to Sell at a Loss
CIGA Eric

In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.

This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.

Classic. U.S. taxpayers not only own the bad loans of GM, AIG, GMAC, et. al, but also the collateral behind them. While the Fed speaks of draining liquidity from the system, the words are shattered by political necessity of infinite liquidity. There will be consequences to these actions.

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Japense Yen
CIGA Eric

As the media debates various agendas, the markets resolve their own. No one, individual or group, is bigger than the market. Follow it, or get out of the way.

The Bank of Japan (BOJ) may be talking down the Yen, but the tape has yet to support it. That which cannot go down with force will reverse and attempt to go up with force. Looks as if two of the "three taps and out" have been booked.

Japanese Yen ETF (FXY)

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Treasuries Replace Munis as Brown Brothers Sees Value (Update3)
CIGA Eric

Muni bonds are losing favor as state and local governments raise taxes to fund the record $18.5 billion in budget gaps estimated in a National Governor’s Association survey.

Local municipalities have big budget holes to fill; some of these holes are "Greece-like" in size. The fact that no one wants to talk about it doesn’t mean that the problems go away.

Source: bloomberg.com

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New Normal Becomes Old Normal as Exports Propel U.S. Recovery
CIGA Eric

The “new mix” is out to topple the “new normal” as the paradigm for America’s economic future.

The 5.9 percent annualized surge in fourth-quarter growth — the fastest since 2003 — was powered more by exports and business investment than the traditional drivers of consumption and housing. This new mix of demand will boost the economy by 3.7 percent in 2010 and pave the way for 3.5 percent annual average increases thereafter, said Joseph Carson, an economist at AllianceBernstein in New York, who coined the phrase.

Talk is cheap. Long-term export growth must be lead by investment rather than devaluation. A breakdown of GDP reveals that domestic private investment, though bouncing from extremely depressed levels in the fourth quarter, remains firmly entrenched within a secular down trend. The new normal of currency devaluation, coined beggar thy neighbor policies in the second Great Depression, fosters only temporary allocation shifts or the size of the slice within economic pie representing the global economy. It does little to grow the size of the pie for everyone.

Source: bloomberg.com

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Dominique Strauss-Kahn, the head of the International Monetary Fund, suggested Friday the organization might one day be called on to provide countries with a global reserve currency that would serve as an alternative to the U.S. dollar.

What will come as a surprise is not only how fast "one day" arrives but also which currency is selected by the market.

Purchasing Power of the USD:

Source: abcnews.go.com

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Hi Jim,

The Gold Currency Index is now testing the all-time highs of last December on the weekly chart. A close well above current levels on a weekly basis would reconfirm the secular uptrend and predict a move up to new highs.

Best,

CIGA Erik
Prometheus Market Insight
http://www.prometheusmi.com

Stocks jump after better-than-expected jobs report

Major stock indexes climbed more than 1 percent, including the Dow Jones industrial average, which rose 122 points to add to strong gains for the week. Treasury prices slid as demand for safe havens eased.

The cheerleaders with megaphones, also known as spinsters, are loud and well-organized. The real megaphones or trend patterns of valuation, however, are rarely discussed. Stocks, relative to historical dividend yields are getting cheap, and they’re going to get a lot cheaper before the decade is over. Cheerleaders tend to cheer the upside, but rarely have the insight to get you out before the next round of what can only be described as the "arse paddlings"

S&P 500 Real Dividend Yields 10 Yr Average:

Source: finance.yahoo.com

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Gold – Big flush looks over
CIGA Eric

The big flush of the 2009-2010 run, similar to 2005-2006, looks over.

The Big Flush – Gold London P.M Fixed and the COT Futures and Options Open Interest Stochastic Weighted Average:

Gold London P.M Fixed and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest and The Big Flush Combination Chart:

By design, money setups up within the panic and confusion. The minimum upside target of the October breakout of $1,400, yes it is still in play, could be achieved by late spring. Many within the "gold community" will not be ready.

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