The Chart Is True

In The News Today

Posted: Jul 12 2010 By: Jim Sinclair Post Edited: July 12, 2010 at 6:36 pm

Filed under: In The News

"A black market is a free market operating against the wishes of the state."
–Harry Browne.

Thought For The Day

Negative and completely fallacious articles are carried in major international publications while the gold banks continue to cover their short positions according to filed reports.

What is wrong with that picture?

Bullish Money Flows in Gold – Follow Up
Eric De Groot

Bullish Money Flows in Gold on 7/10/10 illustrated how connected players were using a MOPE-induced decline in gold to cover their short positions

What are these charts?

These charts represent multivariate and multitime statistical analysis of leverage money flows within various trading groups. In other words, the analysis "looks" for statistically significant changes in the money flows to illustrate how a market is being setup for a move that contradicts the headline MOPE. It’s all about control.

MOPE, a tool of control and indication of the lack of intellectual respect its recipients, is never your friend in gold.

Jim’s Thought of the Day says it all,

Negative, and total fallacious articles, are carried in major international publications while the gold banks continue to cover their short positions according to filed reports. What is wrong with that picture?

Jim,

What is wrong with the picture is that few can "see" the setup or "play" in the con game.

Eric

More…

Jim Sinclair’s Commentary

A lender lends money only when the economic sun is shining, and takes away your umbrella when it starts to rain.

More Americans’ credit scores sink to new lows
By EILEEN AJ CONNELLY (AP)

NEW YORK — The credit scores of millions more Americans are sinking to new lows.

Figures provided by FICO Inc. show that 25.5 percent of consumers — nearly 43.4 million people — now have a credit score of 599 or below, marking them as poor risks for lenders. It’s unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use.

Because consumers relied so heavily on debt to fuel their spending in recent years, their restricted access to credit is one reason for the slow economic recovery.

"I don’t get paid for loan applications, I get paid for closings," said Ritch Workman, a Melbourne, Fla., mortgage broker. "I have plenty of business, but I’m struggling to stay open."

FICO’s latest analysis is based on consumer credit reports as of April. Its findings represent an increase of about 2.4 million people in the lowest credit score categories in the past two years. Before the Great Recession, scores on FICO’s 300-to-850 scale weren’t as volatile, said Andrew Jennings, chief research officer for FICO in Minneapolis. Historically, just 15 percent of the 170 million consumers with active credit accounts, or 25.5 million people, fell below 599, according to data posted on Myfico.com.

More are likely to join their ranks. It can take several months before payment missteps actually drive down a credit score. The Labor Department says about 26 million people are out of work or underemployed, and millions more face foreclosure, which alone can chop 150 points off an individual’s score. Once the damage is done, it could be years before this group can restore their scores, even if they had strong credit histories in the past.

More…

Jim Sinclair’s Commentary

You have to love how hard the big guys are working to cover their paper gold shorts.

This is in order to dull the comments on state and municipal risk by the Fed carried by the media yesterday and today.

U.S. States’ Financial Woes Aren’t the Next Greece, Samson Capital Says
By Esme E. Deprez – Jul 12, 2010

U.S. states and municipalities struggling with mounting budget deficits “are not in the same precarious financial condition as Greece,” Samson Capital Advisors said.

The cost of protecting U.S. municipal bonds surged this year as investors bought insurance on U.S. state obligations after global stocks tumbled and Europe’s debt crisis worsened. New Jersey Governor Chris Christie told members of the Manhattan Institute on May 25 that the state is “careening our way toward becoming Greece.” Even so, states aren’t on the verge of default and such comparisons distract from more serious issues, Samson Capital said in a July 8 report.

“The statement that any U.S. state is the next Greece, meaning a near default on their bonds, is not based on fact,” said Judy Wesalo Temel, a principal and director of credit research at Samson, which manages $7 billion. “Comparing the Greek debt crisis to state and local governments is not valid and is distracting from the real concerns about budgets.”

The median debt to gross domestic product of U.S. states is 2 percent, compared with Greece’s 113 percent, according to last week’s report by Samson Capital, a New York-based fixed income investment manager.

Equating Illinois, whose deteriorating financial position left it with about $4.7 billion in unpaid bills at the end of June, with the Mediterranean nation is “ridiculous,” Governor Pat Quinn said as the state prepared to sell $900 million in Build America bonds this week.

More…

Jim Sinclair’s Commentary

It is all crap. The major profits for banks since April of 09 have been from the FASB permitted write up in value of previously marked down assets as a product of market valuation.

This filtered through the trading department as trading profits as that is how an inventory markup is always handled.

Unless mark to market is reinstated no financial entity’s balance sheet, Bank of America included, is anything more than a financial cartoon.

You know about the Western world banking community’s desire for outrageous bonuses. That is because it is definitely the last dip at the well of absurd, paper only, profits.

Bank Profits Depend on Debt-Writedown `Abomination’
By Bradley Keoun and David Henry – Jul 11, 2010

Bank of America Corp. and Wall Street firms that notched perfect trading records in the first quarter are now depending on an accounting benefit last used in the depths of the credit crisis to prop up their results.

Bank of America, the biggest U.S. bank by assets, may record a $1 billion second-quarter gain from writing down its debts to their market value, Citigroup Inc. analyst Keith Horowitz estimated in a June 23 report. The boost to earnings, stemming from an accounting rule that allows banks to book profits when the value of their own bonds falls, probably represented a fifth of pretax income, Horowitz wrote.

Investor fears of a Greek default, stalled U.S. economic recovery and tougher industry regulations have rattled markets, snapping banks’ trading streaks and rekindling doubts about their creditworthiness. Prices for Bank of America’s credit derivatives — used by traders to bet on the likelihood of the firm’s default — rose by 34 percent during the second quarter, while Morgan Stanley’s doubled and Goldman Sachs Group Inc.’s surged 86 percent.

“What’s on investors’ minds are the macroeconomic issues, as reflected by the interbank market in Europe, the very low yields on U.S. Treasuries and recent data on economic growth, jobs and housing,” Credit Agricole Securities USA analyst Michael Mayo said in an interview. “To the extent that the earnings power is less, the banks would not generate as much capital, so there’s less capital available to absorb future losses.”

Statement 159

In the first quarter, the four biggest U.S. lenders — Bank of America, JPMorgan Chase & Co., Citigroup and Wells Fargo & Co. — produced combined profit of $13.5 billion, the most since the second quarter of 2007. That figure probably fell by 28 percent in the second quarter, based on a Bloomberg survey of analysts’ estimates. The banks are scheduled to announce results over the next two weeks, led by JPMorgan on July 15.

More…

Irrational Gold Selling

The Mogambo Guru

The shrewd, funny and irreverent Mogambo was surprised by gold’s recent dramatic correction, since it indicated gold sales even in the face of the Fed’s dollar destruction through excessive money printing. “Apparently, these market-timing geniuses have failed to understand that that this is the Perfect Freaking Time (PFT) to buy gold, because here they are, selling!” he writes. Selling gold right now is such a ridiculous notion that Mogambo was dumbfounded. He is of the “buy and hold gold” camp, not the “trade gold” camp, having discovered the many downsides of trading stocks, bonds, commodities and their derivatives. He could have avoided all the negative experiences had he read Nassim Taleb’s The Black Swan and thus discovered that the bell-curve of normal probability is not how things really work over the long term. However, buying gold, silver and oil as a defense against the horrific inflation in prices that lies ahead, thanks to the Federal Reserve creating too much money so that the Obama administration can deficit-spend the US into bankruptcy and utter destruction, is the Mogambo solution. “I got the idea from 4,500 years of historical precedents of one moronic country after another doing this same, stupid ‘spending oneself into bankruptcy’ thing,” he writes; “all you can do is say, ‘Whee! This investing stuff is easy!’”

http://dailyreckoning.com/irrational-gold-selling/

Will Economic Austerity Kill Gold’s Bull Market?

Dominic Frisby

On 21 June gold broke out to new all-time highs above $1,260 per ounce, but then made a dramatic correction to around $1,190. That's quite a correction and it concerned a lot of people, so Frisby addresses whether this is anything more than a healthy pull-back. First of all, a summer pull-back for gold is normal, and consequently the June-August timeframe is usually one of the best times to buy. Secondly, gold's June high above $1,260 was a function of US dollar weakness. Against the euro and the pound, gold made its high on June 7, exactly in accordance with a chart of the metal’s seasonal pattern, and then made a lower high on June 21. Is the case for gold weakening? The ECB has effectively tightened monetary conditions recently, and this has been responsible for some of the euro's strength in recent weeks. Meanwhile the pound, under the UK’s new austere government, has been strong. This semblance of fiscal sanity returning to both sides of the Channel may have weakened the case for gold. But are we really at the dawn of a new age of austerity? How will Europe react when push comes to shove, as it surely will. The UK still has gigantic debts to overcome; the day of reckoning still lies ahead. Meanwhile, in the US there is no sign of any attempt to get spending in check. Money that people don't have is still being recklessly spent. 'Helicopter' Ben Bernanke still believes in his printing press. Judging by the ever-increasing deficit, President Obama seems bent on trying to spend his way out of trouble. The US will have a much greater impact on the gold price than the UK and, since there is still so much uncertainty and profligacy, the gold bull market has further to go.

www.moneyweek.com/investments/precious-metals-and-gems/will-austerity-kill-golds-bull-market-02712.aspx

So Little Gold

Arnold Bock

There isn’t much gold around, and this is a key issue for those who invest in precious metals. Bock contends that, given the scarcity of gold and silver bullion supply, prices will go parabolic once governments, institutional and private investors realize supply is alarmingly insignificant. The top 8 gold-owning countries are the US, followed by Germany, Italy, France, China, Switzerland, Japan and the Netherlands. None of these countries back their currency with gold, so presumably they own the yellow metal because they believe gold is the only real money, not the coloured paper and numeric symbols on computer screens that are the ultimate in make-believe fiat currency. The IMF owns close to 3,000 tonnes of gold, while the most significant non-governmental holders of gold are the bullion ETFs. They are said to own more than 1,856 tonnes of gold, but their rapid growth raises serious concerns over exactly how much of their holdings are backed by metal in a vault and how much is just another version of ‘paper gold’. In addition, ETFs lack operational transparency. In all, the total value of gold that exists in the world is roughly $5 trillion at today’s price and, in terms of physical size, represents a cube measuring 66.5 feet. That’s not that much from either perspective. Meanwhile, annual gold production totals $73 billion (silver is only $10.3 billion) at today’s price. Compare that to the projected US budgetary deficit for fiscal year 2010 of $1.6 trillion, the official accumulated debt of $13 trillion and unfunded contingent future liabilities and obligations of well over $100 trillion. This illustrates just how infinitesimal annual gold production is. In addition, in spite of a 400% rise in the price of gold over the past ten years, annual production has stalled. This has some analysts concluding that ‘peak gold’ is now a reality, much like peak oil. Bock discusses phantom gold, paper gold, token gold and parabolic gold.

http://financialsense.com/contributors/arnold-block/so-little-gold-why-so-cheap

US Marks 3rd-Largest, Single-Day Debt Increase

Stephan Dinan

The US debt leapt $166 billion in a single day last week, the third-largest increase in US history, at a time when Congress is balking over higher spending and debt has become a key policy battleground. The one-day increase for June 30 was bigger than the entire annual deficit for 2007 and larger than the $140 billion in savings the new health care bill will produce over its first 10 years. The figure works out to nearly $1,500 for every US household, or more than 10 times the median daily household income. All three of the biggest one-day debt increases have occurred under the Obama administration, and all of the top six have been in the past two years. Fears over all the red ink have stalled key parts of the Democrats’ agenda in Congress in recent weeks. The CBO said revenues are doing slightly better this year than last, while spending is down about $73 billion, mainly because giant Wall Street bailout packages were not a factor this year. Other spending is higher, including unemployment benefits, which have jumped nearly 50%. June 30 is a major day for new debt, since intra-governmental debts are rolled over on that day. This June 30, the government issued $760 billion in new debts and redeemed $594 billion, for a new net debt of $166 billion that day. The latest government budget proposal calls for a mix of tax increases and spending reductions, including a freeze on non-security discretionary spending, which would reduce deficits by $1 trillion over the next decade. A bipartisan commission has been asked to recommend major changes that could help reduce the deficit to about 3% of gross domestic product, and stabilize the debt held by the public – which is a different than total debt – at about 60% of GDP, arguably more sustainable levels. To reach a sustainable debt goal the government will have to raise taxes by 25%, cut spending by 20% or do some combination of the two. The key measure may not be total public debt, but the debt in the hands of consumers. Last week, that number was $8.628 trillion.

www.washingtontimes.com/news/2010/jul/7/us-marks-3rd-largest-single-day-debt-boost/print/