Filed under: Trader Dan Norcini
Dear Friends,
Observing the price action in the commodity markets today has given me great reason for concern for that which I feared seems to have occurred, namely, the crude oil market has broken out to the upside. I suppose it was just a matter of time based on the orgy of fund buying across the commodity sector but I was secretly hoping that we might avoid such a close mainly to prevent what now seems to be a certain price rise for the cost of energy. Heretofore, the soaring CCI (Continuous Commodity Index) has been moving higher mainly based on food and metal costs. Now we have the trifecta where the three main segments of that index are moving higher in tandem. Actually, given the extent of the price run in the food and metals sector, the energy sector has a lot of ground to make up.
Yesterday crude put in its best close in 26 months. Today it has closed above what has become both technical and psychological chart resistance at the $90 level. Should it end this trading week above $90, holiday trading conditions or no holiday trading conditions, it will put in its best weekly close since October 2008. Moving forward into the New Year, it looks most probable that it is going to make a run at $100.
My fear mentioned above is that in addition to consumers soon to get walloped with sticker shock at the grocery stores within the space of a few months as the price rise works its way through the distribution channels, they were also going to get hit with rising gasoline and energy costs, a double whammy for their pocketbooks at the time that many can ill afford it. There are so many struggling families dealing with lost incomes and underemployment for those fortunate enough to have found work, that any further price pressures on the energy front would act to take some of them over the edge financially. Many are having to cut expenses drastically in an attempt to stay in their homes. How soaring food and energy costs are supposed to benefit the economy escapes me.
The ivory tower types of the monetary realm are completely disconnected from the havoc and harm that they have caused so many with their incredibly short-sighted and foolhardy monetary policies. The Federal Reserve is presiding over the deliberate and planned unleashing of the inflation genie without the least bit of concern as to how that is going to affect the average middle class American. Words cannot express the contempt and disdain I have for this group of elitists. Keep in mind how this entire debacle began and the “medicine” that has been brought forth to supposedly cure it. If this is the cure, they are only succeeding in slowly killing the patient.
There does not seem to be any end in sight to the continued money creation efforts of the Fed so all that we can do is attempt to protect ourselves and our loved ones from their depredations upon our life savings. The bond market, while currently being artificially propped up by these snake oil salesmen, looks heavy, even in spite of the massive buys it is seeing as the Fed makes the purchases that are part of its QE (money printing) program. Once that market breaks down in earnest, it will not take much to see a cascade of selling erupt as bond holders head to the exits. I suspect that the Chinese are more than seriously concerned about their national wealth, a large part of which still remains trapped in these worthless IOU’s called Treasury Debt.
Long term rates could then rise quite rapidly as bondholders experience a selling panic and feverishly attempt to avoid being the last man standing in what might well become a sort of perverse game of musical chairs. Their actions will create a cycle in which selling intensifies. The resulting rise in longer term interest rates will work to continue depress the Real estate sector not to mention hit thousands of homeowners trapped in adjustable rate mortgages which will then reset to a rate that may force even more of them out of their homes. Quite frankly, I see nothing on the horizon preventing this from occurring at this point because the Fed cannot create enough money to buy up all the outstanding Treasury debt that is going to be unloaded. Oh they conceivably could I suppose but at what cost to the Dollar!
Jim has said it more than once over the last few years that these derivative creators and vile peddlers have destroyed us all in their greed. Many of you have not understood what he has been saying or perhaps felt that it was an overreaction. Rest assured, the fallout from this sordid mess is now rapidly descending upon us.
The Fed created this travesty under the tenure of Mr. Greenspan who never saw a potential problem on the horizon without throwing money at it. For that, he was stupidly hailed as “The Maestro”. His madness, of lowering interest rates to ridiculously low levels, gave rise to the hedge fund industry and its attempts to then find yield in any sector that it could. The wave of speculative frenzy unleashed then crashed into one sector after another only abating when the derivative market blew all to hell which was inevitable. Enter Mr. Bernanke, who then revitalized the beast of speculative frenzy by one upping his predecessor. Much like Beowolf’s golden horn raised the dragon, Bernanke’s QE idiocy fan the fires of leveraged insanity as he practically begged the hedge funds to buy commodities to induce inflation and ward of his ridiculous fear of deflation. The results are now obvious. Nice going guys – you can sit in your ivory tower and quietly study the effects of your brain child while Middle America slowly dies of price asphyxiation. A pox on your entire house.
Click either chart to enlarge in PDF format with commentary from Trader Dan Norcini
Observing the price action in the commodity markets today has given me great reason for concern for that which I feared seems to have occurred, namely, the crude oil market has broken out to the upside. I suppose it was just a matter of time based on the orgy of fund buying across the commodity sector but I was secretly hoping that we might avoid such a close mainly to prevent what now seems to be a certain price rise for the cost of energy. Heretofore, the soaring CCI (Continuous Commodity Index) has been moving higher mainly based on food and metal costs. Now we have the trifecta where the three main segments of that index are moving higher in tandem. Actually, given the extent of the price run in the food and metals sector, the energy sector has a lot of ground to make up.
Yesterday crude put in its best close in 26 months. Today it has closed above what has become both technical and psychological chart resistance at the $90 level. Should it end this trading week above $90, holiday trading conditions or no holiday trading conditions, it will put in its best weekly close since October 2008. Moving forward into the New Year, it looks most probable that it is going to make a run at $100.
My fear mentioned above is that in addition to consumers soon to get walloped with sticker shock at the grocery stores within the space of a few months as the price rise works its way through the distribution channels, they were also going to get hit with rising gasoline and energy costs, a double whammy for their pocketbooks at the time that many can ill afford it. There are so many struggling families dealing with lost incomes and underemployment for those fortunate enough to have found work, that any further price pressures on the energy front would act to take some of them over the edge financially. Many are having to cut expenses drastically in an attempt to stay in their homes. How soaring food and energy costs are supposed to benefit the economy escapes me.
The ivory tower types of the monetary realm are completely disconnected from the havoc and harm that they have caused so many with their incredibly short-sighted and foolhardy monetary policies. The Federal Reserve is presiding over the deliberate and planned unleashing of the inflation genie without the least bit of concern as to how that is going to affect the average middle class American. Words cannot express the contempt and disdain I have for this group of elitists. Keep in mind how this entire debacle began and the “medicine” that has been brought forth to supposedly cure it. If this is the cure, they are only succeeding in slowly killing the patient.
There does not seem to be any end in sight to the continued money creation efforts of the Fed so all that we can do is attempt to protect ourselves and our loved ones from their depredations upon our life savings. The bond market, while currently being artificially propped up by these snake oil salesmen, looks heavy, even in spite of the massive buys it is seeing as the Fed makes the purchases that are part of its QE (money printing) program. Once that market breaks down in earnest, it will not take much to see a cascade of selling erupt as bond holders head to the exits. I suspect that the Chinese are more than seriously concerned about their national wealth, a large part of which still remains trapped in these worthless IOU’s called Treasury Debt.
Long term rates could then rise quite rapidly as bondholders experience a selling panic and feverishly attempt to avoid being the last man standing in what might well become a sort of perverse game of musical chairs. Their actions will create a cycle in which selling intensifies. The resulting rise in longer term interest rates will work to continue depress the Real estate sector not to mention hit thousands of homeowners trapped in adjustable rate mortgages which will then reset to a rate that may force even more of them out of their homes. Quite frankly, I see nothing on the horizon preventing this from occurring at this point because the Fed cannot create enough money to buy up all the outstanding Treasury debt that is going to be unloaded. Oh they conceivably could I suppose but at what cost to the Dollar!
Jim has said it more than once over the last few years that these derivative creators and vile peddlers have destroyed us all in their greed. Many of you have not understood what he has been saying or perhaps felt that it was an overreaction. Rest assured, the fallout from this sordid mess is now rapidly descending upon us.
The Fed created this travesty under the tenure of Mr. Greenspan who never saw a potential problem on the horizon without throwing money at it. For that, he was stupidly hailed as “The Maestro”. His madness, of lowering interest rates to ridiculously low levels, gave rise to the hedge fund industry and its attempts to then find yield in any sector that it could. The wave of speculative frenzy unleashed then crashed into one sector after another only abating when the derivative market blew all to hell which was inevitable. Enter Mr. Bernanke, who then revitalized the beast of speculative frenzy by one upping his predecessor. Much like Beowolf’s golden horn raised the dragon, Bernanke’s QE idiocy fan the fires of leveraged insanity as he practically begged the hedge funds to buy commodities to induce inflation and ward of his ridiculous fear of deflation. The results are now obvious. Nice going guys – you can sit in your ivory tower and quietly study the effects of your brain child while Middle America slowly dies of price asphyxiation. A pox on your entire house.
Click either chart to enlarge in PDF format with commentary from Trader Dan Norcini
While Rome burned Nero fiddled. While China is securing its future position as the largest economy on the planet the West is still fiddling with OTC derivatives and paper shuffling.
How can people be so damn dumb? Where is leadership?
China’s gobbling up South American commodities: How investors can profit Dec-21-10 7:20pm
China’s large appetite for commodities has it heading into South America. And Brazil and Argentina are getting the lion’s share of its interest.
Chinese companies have spent over $15 billion just on energy deals alone, including:
CNOOCSinochemStatoilSinopecRepsol YPFPan American Energy
Now, in December, Sinopec is paying $2.45 billion for the Argentine operations of Occidental Petroleum (NYSE: OXY, Stock Forum).
Wall Street turned its nose up at all of those deals as being too expensive for too little. But as usual, it’s missing a potentially profitable trend.
China is willing and able to pay a premium to lock up crucial commodities. And it doesn’t mind going all the way to Argentina to get them…
China’s Argentine investments
China knows very well how much it needs to secure commodities for itself. And it has no problem forging economic ties and trade deals with certain countries to do that.
More…
Treasuries’ Worst Drop in 2010 Driven by Central Bank Sales: Chart of Day
By Wes Goodman – Dec 21, 2010 6:06 PM PT
Central banks outside the U.S. sold Treasuries at the end of November and in December for the first time since June, spurring the biggest monthly loss in a year for the government securities.
The CHART OF THE DAY graphs Treasuries held at the Federal Reserve by foreign central banks and governments. It also shows U.S. 10-year yields climbing in December to a seven-month high. So-called custody holdings rose to a record $2.611 trillion on Nov. 17, according to the U.S. central bank. The figure dropped $2.25 billion in the last week of November, and foreign official holders have sold $1.5 billion of Treasuries in December.
“Foreign central banks have dramatically slowed their buying of Treasuries,” JPMorgan Chase & Co. analysts led by Srini Ramaswamy in New York wrote in a report Dec. 17. “This sharp decline in foreign demand likely contributed to the selloff in Treasuries,” according to JPMorgan, one of the 18 primary dealers required to bid at the government debt sales.
Treasuries handed investors a 2.0 percent loss this month, according to Bank of America Merrill Lynch indexes. The last time U.S. government debt fell more was in December 2009, when it dropped 2.6 percent. Investors outside the U.S. hold about half of the nation’s marketable debt, which has grown by more than 50 percent since the start of 2009 to $8.75 trillion.
More…
Jim Sinclair’s Commentary
Please check out Bill Carleton’s newest music video, "That’s Why (I’m Mining Gold)" This song was written and performed by Bill and is the story of when I got out of gold and went to Alaska with two friends to walk around Ophir.
Jim Sinclair’s Commentary
Here is an excellent comment on the End Game question asked about gold. Imitation remains the greatest of compliments.
Jim Sinclair’s Commentary
Of course they will as soon as no more drama is required for the euro short play.
Self-righteous Germany must accept a euro-debt union or leave EMU Ambrose Evans-Pritchard
If Germany and its hard-money allies genuinely wish to save the euro – which is open to doubt – they should stop posturing, face up to the grim imperative of a Transfer union, and desist immediately from imposing their ruinous and reactionary policies of debt deflation on southern Europe and Ireland.
One can sympathise with the German people. Their leaders in the 1990s told them "famine in Bavaria" was more likely than the preposterous suggestion that Germany might have to bail out countries as a result of EMU.
But events have moved on and, rather than striking tones of Calvinist righteousness, the Teutonic bloc might do well to acknowledge equal responsibility for the capital flows, trade imbalances, and cumulative errors that caused the EMU debacle, and therefore accept that the honourable course is to meet the struggling south halfway.
Readers may have a better menu, but here is my own rough sheet: a debt union, funded by Eurobonds; a calibrated jubilee on traditional IMF lines for Ireland, Greece, Portugal, and if necessary Spain, to occur in parallel with austerity cuts; and a monetary blitz by the European Central Bank to prevent the victims tipping into core deflation, even this stokes inflation of 4pc or 5pc in northern Europe.
It beggars belief that the ECB should continue to allow the contraction of the M3 money supply and credit to private firms. Since EU leaders have already shown their willingness to ram through treaty changes without full ratification under Article 48 of the Lisbon Treaty, they can likewise bring ECB ideologues to heel with a new mandate.
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Jim Sinclair’s Commentary
The new cardinal rule of the financial world is as long as the fine is less that the income generated that is good business.
Deutsche Bank to Pay $554 Million in Tax Shelter Case By David Glovin, David Voreacos and Bob Van Voris – Dec 21, 2010 5:01 PM MT
Deutsche Bank AG, Germany’s largest bank, admitted criminal wrongdoing and agreed to pay $553.6 million to avoid prosecution in the U.S. over fraudulent tax shelters that generated $29 billion in “bogus” tax losses.
The U.S. Justice Department, under an agreement yesterday, won’t prosecute the Frankfurt-based bank for fraud or tax evasion for enabling wealthy U.S. citizens to avoid $5.9 billion in taxes, after the bank admitted criminal wrongdoing.
The settlement includes a $149 million civil penalty, the fees that Deutsche Bank generated from the shelters, and the taxes and penalties the Internal Revenue Service was unable to collect from taxpayers because of the misconduct, according to the agreement.
From 1996 to 2002, “Deutsche Bank assisted high net worth United States citizens, who, through 2005, reported approximately $29.3 billion in bogus tax benefits on their tax returns,” according to the agreement. “DB acknowledges that it was wrong and unlawful to have engaged in these transactions and regrets having done so.”
The settlement stems from a U.S. probe into illegal tax shelters sold by accounting firm KPMG LLP. The U.S. previously brought criminal charges against former KPMG executives. Charges against New York-based KPMG, one of the Big Four firms, were dismissed in January 2007 after the firm paid a $456 million fine.
More…
Jim Sinclair’s Commentary
For the times we have found Bloomberg lacking, let’s say bravo to the following.
The answer is that Greece did the 105 swap like Lehman and every other financial institution. Clean all the crap off your balance sheet before the year end and buy it back two weeks into January of the New Year. That is called kiting losses (deficits in this case) and was considered illegal before OTC derivatives were invented, which are all frauds anyway.
By the way, kiting losses is still illegal, but I imagine FASB sold out on that as well.
Bloomberg Sues ECB to Force Disclosure of Greece Swaps By Elisa Martinuzzi and Alan Katz – Dec 22, 2010 8:49 AM PT
Bloomberg News filed a lawsuit against the European Central Bank, seeking the disclosure of documents showing how Greece used derivatives to hide its fiscal deficit and helped trigger the region’s sovereign debt crisis.
The lawsuit asks the European Union’s General Court in Luxembourg to overturn a decision by the ECB not to disclose two internal documents drafted for the central bank’s six-member executive board in Frankfurt this year. The notes show how Greece used swaps to hide its borrowings, according to a March 3 cover page attached to the papers obtained by Bloomberg News.
ECB President Jean-Claude Trichet withheld the documents after the EU and International Monetary Fund led a 110 billion- euro bailout ($144 billion) for Greece. The dossier should be disclosed to stop governments from employing the derivatives in a similar way again and to show how EU authorities acted on information they had on the swaps, according to the suit, filed by Bloomberg Finance LP, the parent of Bloomberg News.
The EU is dependent “on member states taking an open and transparent approach in relation to their levels of debt,” Bloomberg said in its suit. “If Greece has failed to take such an approach in the past, there is a compelling public interest in relevant information being disclosed.”
An ECB spokeswoman declined to comment on the lawsuit, which is based on the EU’s freedom of information rules.
More…
Jim Sinclair’s Commentary
Yes it will on the way to $1650 and beyond.
Gold May Climb to $1,480 After Record, Barclays Says: Technical Analysis By Wendy Pugh – Dec 21, 2010 8:27 PM PT
Gold may climb to $1,480 an ounce, after breaking through record levels set this month, according to technical analysis by Barclays Capital.
A recent dip was a “healthy correction” and levels above the $1,350 area provided a base for gains to initial targets of $1,460 to $1,480 an ounce based on Fibonacci projections and rising trendline resistance, Barclays analysts wrote in a report dated Dec. 17.
Gold for immediate delivery reached a record $1,431.25 an ounce on Dec. 7 before dropping to $1,361.39 on Dec. 16, the lowest level since Nov. 29. The precious metal is heading for a 10th annual gain as debt concerns in Europe and monetary stimulus in the U.S. boost demand for bullion.
A resistance level is where there is expected to be a cluster of sell orders. Fibonacci analysis is based on the theory that prices drop or climb by certain percentages after reaching a high or low.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.
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Jim Sinclair’s Commentary
With currency induced cost push inflation a certainty, which would you prefer, US dollars or copper?
Mystery trader corners copper market. A mystery trader has acquired ownership of 80-90% of the copper sitting in London Metal Exchange warehouses, equal to around half the world’s exchange-registered copper stockpile and worth about $3B. The news came as copper prices reached a record high yesterday of $4.2705 per pound, and the metal has notched a 28% gain this year. As the price of copper, as well as other commodities, continues to climb, investors are growing increasingly wary of the ability of a few traders to dominate the market
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/gold/t24_au_en_usoz_2.gif)
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/silver/t24_ag_en_usoz_2.gif)
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