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In The News Today

Posted: Nov 17 2010     By: Jim Sinclair      Post Edited: November 17, 2010 at 6:50 pm
Filed under: In The News
Trader Dan’s Commentary
Welcome to the new face of trading in the 21rst century… the smaller investing public will be the ones who end up eventually getting a one way ticket to the door as they cannot hope to compete in this sort of arena unless they really and truly deeply understand the particular markets that they are trading.
One thing about these funds – they are generally clueless about the character and nature of the individual markets they trade and their mindless selling and buying creates opportunities for those who know their markets well enough to spot when this computer based selling or buying has pushed prices well beyond fair value and out of sync with the supply/demand picture for that particular commodity.
One has only to respect the hedge fund community for the enormous sums of money at the disposal of their trading machines and the severe price swings that can result from such sums being shoved into or yanked out of markets en masse. As far as respecting them for any intimate knowledge of the things that they trade – that is a joke. Most of them would not be able to tell you the difference between a wheat plant or a corn plant but they are in those markets jerking them all over the place on any given day.
For these people, it is all about chasing movement – nothing else matters.

DJ MARKET TALK: A War On Milliseconds Being Waged At CME Wed Nov 17 12:48:35 2010 EST
1748 GMT [Dow Jones] CME Group (CME) continues to whittle down trade-execution times on its electronic futures and options markets, aiming for transactions to go through in two milliseconds as opposed to the current five in key markets. Energy and metals will be cut over to the faster trade matching engines by the end of 2010, CME CEO Craig Donohue says in investor presentation Wednesday, with interest rates migrating in the first half of next year. There are one thousand milliseconds in one second, and 86,400,000 milliseconds pass by each day. (jacob.bunge@dowjones.com)
Contact us in New York.  Darlene Ross, 212 416-2166;
darlene.ross@dowjones.com

Jim Sinclair’s Commentary
Short the long bond with close stops sounds good to me. Cover at 100 pts (32/32), certainly not more that 200 pts declines.
This is what Bernanke sees. This is why regarding QE to infinity, however even with QE the long bonds are starting to look sick.
This is what the hoard of detractors have no clue about. Well meaning people, but still clueless politicians, are our new legislators
No QE means no tomorrow. QE equals an inflationary to hyperinflationary bunch of tomorrows. Eventually either way in time the Piper must be paid. No QE and the Piper arrives immediately.
The entire Western world will turn to QE as a kick the can further down the road exercise. A bailout of Ireland is QE. Who is Euroland trying to kid?

BOB RUBIN: "US In Terribly Dangerous Territory," Bond Market May Be Headed For "Implosion" Aaron Task | Nov. 17, 2010, 11:24 AM
Warning of the risk of an "implosion" in the bond market, former Treasury Secretary Robert Rubin says the soaring federal budget deficit and the Fed’s quantitative easing are putting the U.S. in "terribly dangerous territory."
Speaking at an event at The Pierre Hotel in New York City honoring Sen. Kent Conrad (D-N.D.), Rubin joined the growing number of current and former officials (foreign and domestic) to criticize QE2. The Fed’s plan to buy $600 billion of Treasuries "has a lot of risk," he said, calling the international reaction "horrendous."
Rubin, who issued a similar warning about the bond market at The FT’s "Future of Finance" conference in October, said Congress’ vote on raising the deficit ceiling next spring could be the "trigger" for a rout in the Treasury market. Several Republican and Tea Party candidates vowed to not increase the government’s debt ceiling unless Democrats agree to sharp cuts in spending that may not be politically tenable.
A Congressional standoff on the debt ceiling could spook international investors, Rubin said, alluding to a market event similar to the Dow’s 778-point plunge on Sept. 29, 2008, when the House initially voted no on TARP.
While most pundits worry about the potential for China to dump its Treasury holdings, the former non-executive chairman of Citigroup said a financial version of the Cold War concept of Mutual Assured Destruction will likely prevent them from doing so. But he is worried about selling by the government’s of Singapore, Hong Kong and Malaysia. "They could say ‘the Chinese are stuck but we’re not,’" Rubin predicts.
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Jim Sinclair’s Commentary
There is no mention in any media stream, but the munis have all the aspects of an area of finance about to roll over hard.
No QE and this markets tanks immediately. With QE it takes time for the crash.

First Serious Sign of Trouble in Muni Bond Market; Orange County California Issue Pulled Wednesday, November 17, 2010
The Orange County Sanitation District in Southern California has postponed the sale of $160m in Build America bonds. “The bond market has been pretty volatile and flooded with new issues,” said Mike White, the controller.
Translation: They can’t get the deal done at a reasonable price, if at all.
Expect further problems, on Tuesday, the yields on triple A 10-year muni-bonds rose 18 bps to 2.93 per cent, the largest one-day rise since October of 2008, according the MMD index.
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Jim Sinclair’s Commentary
Having spent more than a year negotiating with our Chinese brothers, I can tell you that this says China will be buying lots of gold immediately.
A very good book to purchase on the art of understanding our Chinese brothers is "When Yes Means No."

China Considers Gradual Increase in Gold Reserve Holdings, Newspaper Says By Bloomberg News – Nov 16, 2010 10:21 PM ET
China is considering gradually increasing the nation’s gold reserves, the 21st Century Business Herald reported today, citing an unidentified consultant to the government.
There are limits to China’s ability to increase gold holdings on a large scale within a short time, so the gains in the government reserves will be a slow, incremental process, the newspaper said, citing the consultant. China currently has 1,064 metric tons of gold, accounting for 1.6 percent of its foreign exchange reserves, it added.
Gold has gained 22 percent this year, reaching a record $1,424.60 on Nov. 9, as a weakening dollar and concern about the global recovery has spurred demand for a store of value. China should purchase gold and oil overseas with its foreign-exchange reserves to avoid losses from a weakening dollar, Shao Fenggao, an official at China Construction Bank Corp., said on Nov. 1.
“People have always been speculating about China’s gold reserves, but I think there is not much point in second-guessing whether the government is going to buy gold,” Ronald Wang, general manager for greater China at the World Gold Council, said by phone from Beijing today. “They have access to information and they must have a plan with regard to gold.”
China remained the biggest foreign holder of U.S. Treasuries, after its holdings rose by $15.1 billion to $883.5 billion in September from $868.4 billion in August, according to the Treasury’s statistics.
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Jim Sinclair’s Commentary
This is legalized fabrication. Balance sheets should reveal the financial condition of an entity on a given date.
The assumption that banks never sell is a foundation for a decision set in shifting sand that skirts the reason for a yearly balance sheet.

CIGA Eric observes:
"When governments and banking intertwine, as they have slowly done since the adoption of the US constitution, the consequences of greed-driven mistakes are often postponed through bailouts of various types. This action encourages even more hubris and sense of invincibility until the two are forcibly separated by the brute strength of market forces. Thomas Jefferson, a student of Adam Smith and practical economist, understood the dangers entangling banking and government. The words chosen in the U.S. Constitution and his correspondence suggest it."

Sheila Bair, FDIC Chair, today:
Fair Value Accounting
"Another ongoing regulatory process is FASB’s proposal to substantially revise the accounting standards for financial instruments. Under the proposed rule, banks would be required to measure substantially all of their financial instruments at fair value on the balance sheet.
While we understand that the objective of the rule is to make financial statements more transparent, we believe that its effect could be to undermine financial stability by making bank performance more procyclical. In short, we do not believe that a bank – whose business strategy is to hold loans and deposit liabilities for the long term – should be required to measure them at fair value on the balance sheet."
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