So You Thought The Sovereign Debt Crisis Was Over?

May 12, 2011, at 10:08 am
by Jim Sinclair

 

Dear CIGAs,
It has to be obvious that when I post articles I am in agreement with them or will comment accordingly.
Armstrong has given two important messages herein that I agree with:
1. He has defined currency induced cost push inflation in the condition of debt failure.
2. He indirectly makes the point that gold at $1500 will be looked back at as a bargain, just as $248 gold is now.

This is worth the read, especially its conclusion, which in my words is you have not seen anything in gold yet. What is to come makes all of this a modest dress rehearsal.

So You Thought The Sovereign Debt Crisis Was Over? Martin Armstrong



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Dear CIGAs,

Click image to enlarge today’s 30 Year Bond chart in PDF format.








Jim Sinclair’s Commentary

The Media would have you feel differently, but the Financial Times is telling you what I have been telling you since the euro media crisis started. They have given so much social welfare that they have huge fat they can cut back.
The US in comparison has no room to cut without cutting business activity drastically. States of the USA are in a dire debt condition.

Dollar in graver danger than the euro By Axel Merk
Published: May 11 2011 13:31 | Last updated: May 11 2011 13:31
Imagine a country that spends and prints trillions to patch up any problem.
Now imagine another country where there is no central Treasury, meaning that bail-outs are less easy, and which has a central bank that has mopped up liquidity over the past year, rather than engage in quantitative easing.
Why does it surprise anyone that the latter, the eurozone, has a stronger currency than the former, the US? Because of peripheral countries’ debt refinancing issues? And the potential for contagion? These are real and serious issues, but in our assessment, they should be primarily priced into the spreads of eurozone bonds, not the euro itself.
Think of it this way: in the US, Federal Reserve chairman Ben Bernanke has testified that going off the gold standard during the Great Depression helped the US recover faster than other countries. Fast-forward to today: we believe Bernanke embraces a weaker currency as a monetary policy tool to help address the current state of the US economy. What many overlook is that someone must be on the other side of that trade: today it is the eurozone, which is experiencing a strong currency, despite the many challenges in the 17-nation bloc.
A year ago, the euro appeared to be the only asset traded as a hedge against, or to profit from, all things wrong in the eurozone. This was partly driven by liquidity, because it is easier to sell the euro than to short debt of peripheral eurozone countries; and as the trade worked, others piled in. As the euro approached lows of $1.18 against the dollar, the trade was no longer a “safe” one-way bet and traders had to look elsewhere. As a result, the euro is now substantially stronger, yet peripheral bond debt is much weaker.
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Jim Sinclair’s Commentary

Rolling Stones did it again.

"The People vs. The Squid"
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Jim Sinclair’s Commentary

The Boon Doggle must have been huge.

-Reports indicate some analysts are forecasting BofA (BAC) could pay as much as $3.69 billion to settle a probe of its mortgage practices with the SEC.



Jim Sinclair’s Commentary

This is an "Event Horizon" that has passed. Mark it well as it will convince the establishment dollar lovers that they and central banks are in trouble.

Treasury Auctions To Take US Over Debt Ceiling On Monday By Jeffrey Sparshott and Jeff Bater, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- The Treasury Department auctioned $56 billion in new debt Tuesday and Wednesday, enough to take the U.S. over its federal debt ceiling when the three- and 10-year notes settle on Monday.
Treasury officials last month flagged May 16 as the day the government would hit the $14.294 trillion debt limit.
The U.S. is selling $72 billion in new debt over three days this week. The Treasury auctioned $32 billion in three-year notes Tuesday and $24 billion in 10-year notes Wednesday, and will sell $16 billion in 30-year bonds Thursday. All of the auctions will settle Monday.
As of Tuesday, total debt subject to the limit was $14.274 trillion, according to the Treasury Department.
The Obama administration has asked Congress to raise the limit, warning that failure to act could lead the government to default by Aug. 2–and could spook investors even before then.
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Shanghai Silver Trading Volume Surges By 65% Last Month

 

Submitted by Tyler Durden on 05/13/2011 07:52 -0400

In the aftermath of the Shanghai exchange's margin hike and trading band increase reported previously, a pair of articles from Bloomberg and the FT looks at the trading of silver in China, where the mostly retail-traded metal continues to be seen as an inflation hedge. From Bloomberg: "Silver trading in Shanghai, which jumped 65 percent in terms of volume last month, will continue to increase on demand for a safe-haven investment, even as the government moves to curb volatility and speculation." And since China's inflationary concerns are unlikely to go away soon, it is only natural that domestic hedging, mixed in with some wild speculation, will continue: "“Chinese investors have piled into silver as one of the investment choices to hedge against rising inflation,” Shi Heqing, silver analyst at Beijing Antaike Information Development Co., said today. The government’s move to increase margins in an effort to curb volatility won’t affect buying interest in physical material, Shi said." Sure enough volume has exploded: "Volume on the Shanghai Gold Exchange rose to 33,293 metric tons in April, up from 20,206 tons the previous month, according to data from the exchange, the main bourse in China for trading silver." The FT provides another look at the unprecedented surge in silver trading in Shanghai: "At the same time, silver turnover on the Shanghai Gold Exchange, China’s main precious metals trading hub spiked, rising 2,837 per cent from the start of this year to a peak of 70m ounces on April 26, according to exchange data. The number of contracts outstanding, an indicator of investor exposure, doubled over the same period." In other words, while in the US it is mostly gold that is a pure inflation hedge at both the retail and institutional level, in China, where runaway inflation is running far higher than here, silver is the primary means to cut inflationary exposure. Therefore, nothing short of a full on deflationary episode in China will do much if anything to have a long-term impact on the price of silver. 

 

 

 

 

John Taylor: "The Nice Risk Rally Since The First Half Of 2009 Is Ending" And Will Be Replaced By A "Scary Descent" 

Submitted by Tyler Durden on 05/13/2011 09:02 -0400

In the last two years, one of the most accurate predictors of both long and short-term trends has been FX Concepts' John Taylor, whose April call for a EURUSD peak of 1.4925 was almost to the dot. Which is why he is either about to cheapen his predictive record by being wrong, or the days of the rally are ending. In a statement very comparable to that from Jeremy Grantham released a few days ago, Taylor tells Bloomberg that: "the rally in higher-yielding assets is coming to an end with Europe’s sovereign debt crisis resurfacing, growth sluggish and banking systems unsteady. “This is the end of the nice slow moving risk rally that has lulled us pleasantly to sleep since the first half of 2009,” Taylor, chairman of New York-based FX Concepts LLC, said in an interview. “This warning is worthy of a brass band and bright lights as the other side of this low volatility rally will most likely be a scary descent that will have a very negative impact on markets. Our statistical models say we are about at the end of the road for risk.” Taylor gives a deadline to his prediction: "Higher-risk assets, such as equities, the euro and emerging market currencies, have either peaked or will do so by end of July." If Taylor's previous predictive record is any indication, it may get volatile soon. On the other hand, his forte is FX not stocks, and many other forecasters have been burned (or should have been) at the stake of predicting capital markets in a time of central planning.

More to follow...