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Why We Do What We Do Posted: Jul 01 2010 By: Jim Sinclair Post Edited: July 1, 2010 at 1:26 pm
Filed under: General Editorial
Dear Extended Family,
There are times when you must ignore the hedgie madness in the marketplace and revert to why we are doing what we are doing.
The deflation being spoken of today is the catalyst for the coming hyperinflation. The fact is it has been so in all historic examples. The flooding of markets with debt has been brought on for different reasons, but the ways and means of hyperinflation has always been the same.
Therefore it is today’s financial market deflation talk that is the reason why you should own gold.
This continued downturn in business will find government in a panic, not in austerity when their constituency does the Greek dance of panic as the pain on Main Street becomes intolerable. It will.
Contemplate what each of the following means to you one at a time. Do not try to do them all at once. You do not want to do this as a routine memory exercise as much as a meditation on why you have bought the insurance you have.
- Gold is a currency with no liabilities attached. - Gold is competition to paper currency. - Gold is not a commodity. - Gold is a barometer of fear. - Gold is a barometer of confidence in Government. - Gold is insurance. - Insurance is not something to trade. - Gold is money when money fails. - Hyperinflation is a currency event, not an economic event. - Hyperinflation is a currency event described as a loss of confidence in the currency. - Gold in your hand eliminates counter-party risk. - Gold is the high ground when the global tsunami hits. - Gold removes financial agents between you and your assets.
Be strong in your conviction and do not be bothered by the return of the Prechterites and top callers.
Respectfully, Jim

Jim Sinclair’s Commentary
How have I described OTC derivatives to you for the past ten years?

"A Gigantic Ponzi Scheme, Lies and Fraud": Howard Davidowitz on Wall Street Posted Jul 01, 2010 08:00am EDT by Aaron Task

Day one of the Financial Crisis Inquiry Commission’s two-day hearing on AIG derivatives contracts featured testimony from Joseph Cassano, the former head of AIG’s financial products unit. Goldman Sachs president Gary Cohn was also on the Hill.
Meanwhile, the Democrats are still trying to salvage the regulatory reform bill, with critical support from Senator Scott Brown (R-Mass.) reportedly still uncertain.
According to Howard Davidowitz of Davidowitz & Associates, what connects the hearings and the Reg reform debate is the lack of focus on the real underlying cause of the financial crisis: Fraud.
"It was a massive fraud… a gigantic Ponzi Scheme, a lie and a fraud," Davidowitz says of Wall Street circa 2007. "The whole thing was a fraud and it gets back to the accountants valuing the assets incorrectly."
Because accountants and auditors allowed Wall Street firms to carry assets at "completely fraudulent" valuations, he says the industry looked hugely profitable and was able to use borrowed funds to make leveraged bets on all sorts of esoteric instruments. "Their bonuses were based on profits they never made and the leverage they never could have gotten if the numbers were right – no one would’ve given them the money in their right mind," Davidowitz says.
To date, the accounting and audit firms have escaped any serious repercussions from the credit crisis, a stark difference to the corporate "death sentence" that befell Arthur Anderson for its alleged role in the Enron scandal.
More…

Hourly Action In Gold From Trader Dan Posted: Jul 01 2010 By: Dan Norcini Post Edited: July 1, 2010 at 2:07 pm
Filed under: Trader Dan Norcini

Dear CIGAs,
It is not a pretty day for Easy Company in the Gold war today (nothing is ever easy in Easy Company). There appears to have been another one of those mass exodus days in which leveraged trades were being unwound en masse and money was rushing into Treasuries. Apparently deflationary fears led to wholesale dumping of commodities with only a few commodity markets moving higher and defying the selling trend such as the grains and natural gas, and oddly enough, lumber, of all markets.
Interestingly enough, the European based currencies, Euro, Sterling and Swissie, were all strongly higher, particularly the Euro, based on the assumption that things were not quite as bad in Euro land as initially feared. The Yen was sharply higher as well. Gold/Yen, Gold/Euro, Gold/Sterling, trades were all crushed in the process. It appears that there was a type of currency trade unwind occurring in which gold, which has been trading as a currency of late, was involved. As for the reason, I honestly do not know other than the fact that there was some thinking that the European sovereign debt crisis may not be as bad as many were fearing based on the fact that the big bond sale by Spain went pretty decent compared to the worst expectations. Additionally the European banks involved in a lending plan involving the ECB did not ask for as much money as was projected by most analysts.
That seems an awfully slim reed to lean on for such a massive trade unwind in the currencies, but whatever the reason, the US Dollar was on the receiving end of the deal as it was mauled brutally. Gold, which had been drawing a lot of its recent strength from fears surrounding the health of the European currencies, instead of moving inversely to the Dollar, followed the Dollar lower. Remember, both Gold and the Dollar were safe haven plays during the European debt crisis and if those fears were fading, then money outflows due to trade unwinds would affect both the Dollar and the Gold market for the short term.
However, Gold is not going to lose its safe haven status because we experience a day of trade unwinding on a large scale. When the focus shifts back to the woes involving the health of the US currency, gold’s fortunes will revive and it will begin moving higher. It could very well be that the US data that came out today, especially on the housing front and unemployment numbers, is going to cause the focus of the Forex markets to shift back to the US and away from Euroland. If that is the case, we might finally see the same fear that rocked Greece, Spain, etc, begin pressuring the US Dollar lower which will eventually shore up the gold market. California, Illinois, etc. and a host of individual US states are experiencing severe financial duress and without a solid picture on the jobs front, their revenues are going to continue to decline exacerbating an already tenuous fiscal condition. Falling tax revenues at the federal level are not going help reduce a wildly out of control US deficit and debt problem either which to me makes the rush into Treasuries even more suspect. Old habits die hard however and Treasuries continue to be seen by investors as a place to park money while they wait to see what direction things are going to take.
The result of this rush into Federal IOU’s dropped the yield on the ten year almost to 2.9% today. That is the lowest level it has been in more than a year (April 2009 to be precise). What is telling is that even with mortgage rates falling to new lows housing is still DEAD in the water. People are obviously not spending or lack confidence to commit to large item purchases. And why wouldn’t they be? After all, the only jobs being created out there are in government which has to print money to pay the salaries of all those new federal workers anyway since it is technically bankrupt with our national debt now at levels never before seen in the history of our nation when looked at on a % of GDP.
The technical damage to the daily chart of gold is quite severe with today’s sell off. The weekly chart is still in an uptrend however. It does appear that the waning upside momentum on the daily chart was confirmed with today’s huge liquidation plunge. I want to see tomorrow’s price action before I get too convinced that we are going to see much more in the way of downside action.
The HUI damage appears to be worse on the charts having been unable at this point to hold support near 453. It could still get back above that level before the close of trading today if the S&P scoots up off its worst levels but for now the shares continue to follow the broader equity markets.
Tomorrow is a big jobs report day with nearly everyone and their mother looking for a real stinker. It could be that if the numbers come out a wee bit better than expected, which is another way of saying that they are not as lousy as many are fearing, we will see a relief rally in the equities. If that happens, the gold shares will move higher.
There are certainly a lot of cross currents at work in these markets making them extremely challenging to read. The best way for an investor (not a trader) to navigate them is to rely on the longer term charts, particularly the weekly but also the monthly. Try not to get caught up too much in the day to day swings being generated by the billions of Dollars sloshing around the planet moving into and out of so many different markets with seemingly inexplicable movements. I want to point out that there are more than a few hedge funds getting obliterated out there right now and a lot of the price swings being seen are being generated by forced margin related selling or even buying back of huge leveraged short side bets. A lot of funds are not going to survive these markets so if you are a trader, learn from their folly and keep your trading size small so as not to get hurt.
Click charts to enlarge in PDF format with commentary from Trader Dan Norcini


This chart shows the bear market is far worse than you realizeThe "real" S&P 500 is close to new crisis lows...

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