Inflation Fears are Muted as a Renewed Threat of Deflation Appears on the Horizon

June 12, 2011, at 10:47 pm
by Yra Harris 

Dear CIGAs,

Here is the "Rock and a Hard Place."

Here is how it will be resolved.

Here is why gold is going to take out $1650 on its way much higher.

Here is why you must exercise discipline and keep your gold.

Only gold will insure your future financially and physically.

Here is my former partner Ira Harris’ best work. Read the speech, nothing changes!


Notes From Underground: The Inflation Fears are Muted as a Renewed Threat of Deflation Appears on the Horizon 

By Yra
Global equity markets have been under pressure as the economic data from all regions of the world has been weaker than expected. British industrial production numbers were horrid and other areas in Europe have also experienced worse than anticipated activity. Low-money rates have been successful in pumping up many asset classes, especially since Jackson Hole Speech of August 27, 2010. The developed world’s CENTRAL BANKS have been creative in finding ways to keep REAL INTEREST low if not outright negative, making investors holding of cash a losing endeavor.
The looming possibility of a default by Greece and other European peripherals is exerting great pressure on the large European banks, pushing them to hoard capital and curtail lending to ensure having adequate reserves. The ECB is also facing the probability of large losses on their holdings of Greek debt placing restrictions on the European creation. The problem is further magnified by the fact that large U.S. banks have sold large amounts of CDS (CREDIT DEFAULT SWAPS to European creditors, putting more pressure on the balance sheets of the systemic-risky lending institutions. If there is a legally declared DEFAULT, the hit to the large global financial institutions could be LEHMANESQUE.
This is not a new story but it seems to have gained in significance because the developed economies have weakened and thus, the impact from any large credit event would be more harmful. U.S. GDP at 1.8% is not strong enough to shoulder the burdens of a recessionary Europe and a battered Japan. The U.S. housing market is a continuing drag on the balance sheets of banks and consumers. If the FED proceeds with the expiration of QE2 and fails to communicate any type of plans for further action to stimulate economic activity, will  Bernanke and the CLASS of 1937 just allow deflation to set in as the developed world leads the way for a massive LIQUIDATION of all asset classes in order to restore strength to devastated balance sheets? The answer to the question I pose is going to drive trading for the next six months as markets are left to conjecture as to the path that the economic and political policy makers choose to take.
I believe that the fear of DEFLATION is what keeps Chairman Bernanke awake at night and it is having more sleepless nights of late. The FED will have to examine all of the tools at its disposal to determine what will be available to prevent a mass LIQUIDATION OF ASSETS. Analysts have spent much time contemplating QE3 but what we may see will be a repeat of the FED fixing long-term interest rates at a level that will mean a NEGATIVE REAL RATE of interest-forcing money out of BONDS and into other assets. This was done in the 1940s and only removed in 1951. A hat tip to Professor Kevin Waspi for recommending a Bernanke paper delivered in January 2000: “Japanese Monetary Policy:A Case of Self-Induced Paralysis.” It is an important time to be aware of the thought processes of the FED chairman. The paper is very easy to read and well worth the effort.
In his conclusions for Japan to relieve the heavy burden  of DEFLATION, Mr.Bernanke advised taking all types of NON-STANDARD measures. He advised the Japanese MOF and BOJ to undertake policy with ROOSEVELTIAN RESOLVE and said:
“In the end, the most effective actions he took were the same that Japan needs to take. Namely, rehabilitation of the banking system and devaluation of the currency to promote monetary easing. But Roosevelt’s specific policy actions were, I think, less important than his willingness to be aggressive and to experiment, In short, to do WHATEVER WAS NECESSARY TO GET THE COUNTRY MOVING AGAIN (emphasis mine).”
I am trying to prepare the readers of NOTES FROM UNDERGROUND to be prepared for many different FED actions and not to fall prey to the limitations of QUANTITATIVE EASING. It’s exactly why I live a world of 2+2=5.

More…

 

Sean Corrigan Explains Why "This Cannot End Well" 

Submitted by Tyler Durden on 06/12/2011 21:28 -0400

As for the US, there is not too much new to say on the monthly data flow, with what there is of note being more long-term in nature, as the quarterly financial numbers show the maintenance of the split between the vitality of Corporate America and that of the rest of the private sector, as well as the contrast between the unretarded profligacy of the state and the ongoing resizing of the 'shadow' banking sector. What we can also see is the scale of the distortions being introduced into the market where, despite the superficial health of both profits and cash flow (these a touch less impressive if we adjust for either of the US dollar's internal or external loss of value, one should constantly remind oneself), it is apparent that the balance sheet is still being strip-mined to salt the income statement and, more particularly, the per share ratios via debt-financed equity buybacks. Even as this increases the overall fragility of the corporate structure, however, the Fed's egregious obliteration of capital market pricing signals has kept equities looking 'cheap' - with dividend yields anomalously above an artificially-depressed LIBOR and equity earnings yields at par with QE-shrunken corporate bond yields for the first time in almost three decades. This cannot end well.

The Government Monster: Presenting The Centrally Planned States Of America 

Submitted by Tyler Durden on 06/12/2011 21:43 -0400

Bill Buckler's latest Buckaneer report does a 10,000 foot quantification of the one most critical, yet underreported, trend in America's transformation from past to future: its gradual, and ever faster, conversion into a totalitarian, centrally-planned state. "Today, the US government “GOVERNS” 310 million people with an annual budget of nearly $4,000 Billion and a TOTAL (funded and unfunded) debt approaching $US 100,000 Billion. It takes about 5400 times as many Dollars and about 37000 times more debt to “govern” about 3.35 times as  many people as it did a century ago. Why? The answer is equally simple. Today, the US government “governs” everything. It is all pervasive. It has taken over the economy from its people."

Chinese Monetary Tightening Accelerates In May As Loans, M2 Drop 

Submitted by Tyler Durden on 06/13/2011 00:26 -0400

Goldman Sachs summarizes the just released monetary update from China, which some expected could announce a formal rate hike over the weekend.
Key takeaways:

• May monetary data confirms our understanding that there was no loosening of monetary policy in May.
• We believe policy makers will maintain a tight policy stance at least for another month from now.
• We expect a normalization of monetary policy (not an aggressive loosening as in 2H2010) in 2H2011 when inflation is expected to moderate.

What happened:

• Commercial banks extended Rmb551.6 billion in loans in May (market consensus: Rmb650 billion), down from Rmb739.6 billion in April. Outstanding CNY loans grew by 17.1% yoy in May (our forecast: 17.1% yoy, market consensus: 17.2% yoy), down from 17.5% yoy in April. The mom; s.a. ann. growth rose to 16.7%, up from 10.6% in April.
• M2 growth came in at 15.1% yoy (market consensus: 15.5% yoy), down from 15.3% yoy in April. The mom; s.a. ann. growth rose to 14.3%, up from 3.6% in April.

Jim Sinclair’s Commentary

Sell your gold? I do not think so.

Paul tells Manchester crowd inflation will hit 50 percent By MARK HAYWARD
Published Jun 11, 2011 at 3:00 am (Updated Jun 10, 2011)
MANCHESTER — Texas congressman Ron Paul on Friday predicted that inflation will hit 50 percent in the next couple of years, thanks to the massive debt the country has accumulated.
Paul, who spoke to admirers and Republican activists at a Manchester house party, said the inflation will act like default.
Social Security checks will still be cut and interest payments will still be made, but the inflated dollars will allow the government to repay borrowed dollars with devalued money, Paul said.
“They cannot pay the debt,” he said. “I don’t think that means you shouldn’t try and work things out, but with the size of this debt it never gets paid.”
The national debt is about $14.3 trillion.
Paul spoke to about 150 people at the home of Ovide and Bettie Lamontagne, who are hosting receptions for candidates in the Republican presidential primary.
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Jim’s Mailbox

June 12, 2011, at 8:19 pm
by Jim Sinclair 

Silver Preparing For Another Shock And Awe Move 

CIGA Eric

Money flows reflect a bullish setup despite the negative headlines and growing pessimism towards silver.
Open interest continues to decline as the weak hands are flushed (see chart below). This action is consistent with paper operations in which the weak hands are flushed in an environment of headline fear.
Silver London P.M Fixed and the COT Futures and Options Open Interest Stochastic Weighted Average

Accumulation by strong hands has achieved statistical concentration. Statistical concentration tends to precede tradable bottoms (see chart below).
Silver London P.M Fixed and the Silver Diffusion Index (DI)

The only hitch in the setup at this point is retail money. Retail money with its tendency to be concentrated on the wrong side of the trade near inflection points remains relatively neutral as of June 7th (see chart below). Short side concentration by retail money would galvanize the bullish setup. Watch for it in the coming weeks.
Silver London P.M Fixed and the Commercial (C) & Nonreportables (NR) Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest
Silver’s next move has the potential to be “shock and awe”. Smart money is buying long contracts hand over fist. This type of concentrated buying has not been seen since late 2008 (see chart below). The concentrated buying of 2008 foreshadowed nearly a doubling and quadrupling in price by early 2009 and 2011. In other words, the money flow setup foreshadowed a ‘shock and awe’ run that few experts saw coming.
Silver London P.M Fixed and the Commercial Traders COT Futures and Options ZScore Weighted Average of Long & Short As A % of Open Interest


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