Central Banks Concerned Gold Will Go Ballistic, Currencies, QE & More

March 8, 2012, at 11:41 pm
by Eric King

Dear CIGAs,

Eric King of KingWorldNews.com has been kind enough to interview me once again on the up to the minute details of what is happening in the Gold market. Please click the link below to listen to the interview.
Click here to listen to the interview…

In The News Today

March 9, 2012, at 10:14 am
by Jim Sinclair 

Dear Friends,

The major gold market question is will the heat being turned up on the International Swaps and Derivative Association force them at some point soon to declare a default in Greece?

Judging from the news this morning that MF executives are taking their large performance bonuses, I would say do not look for a change in the decision at the ISDA short of Greece passing a begging bowl around at zero, and maybe not even then.

Regards,
Jim

 

In The News Today

March 8, 2012, at 9:08 pm
by Jim Sinclair 

My Dear Friends,

It seems almost to have come out of nowhere because gold is defying the interventionists and loud naysayers.

I was asked earlier this week by a dear friend if I thought gold could be at or above $1735 this week. My answer then was that this number was a stretch.

Well it isn’t that much of a stretch today. According to Kenny such an event puts us behind all the effort of the central banks to prevent the next real range of $1700 – $2111 and the new chapter of QE.

Regards,
Jim


Jim Sinclair’s Commentary

They should not be but they are.
They should not be but don’t expect any change.
They should not be but how else can you rig the game.

Banks Shouldn’t Be Both Judge and Jury on Credit Defaults: View By the Editors Mar 7, 2012 7:25 PM ET
Imagine you bought a house and, to insure it, you had to purchase coverage from the homebuilder.
Then imagine a fire nearly destroyed the house, but your ability to collect the insurance depended on a committee of anonymous homebuilders meeting in secret to vote on whether to write you a check. If denied, the panel wouldn’t have to provide an explanation, you wouldn’t be allowed to review the minutes of closed-door discussions and you’d have no right to appeal.
Not a great system. But not dissimilar to the one that governs the world of credit-default swaps, the contracts that insure sovereign- and corporate-debt investors against default. Panels made up of representatives from large banks, hedge funds, investment firms and other interested parties, formed by the International Swaps and Derivatives Association, decide whether payouts will be made to investors.
With the Greek crisis, the group has been busy. It already ruled March 1 that Greece’s debt restructuring so far wasn’t a “credit event,” meaning it didn’t trigger payments on credit- default swaps. It may have been the correct decision. But no outsiders participated in that meeting. No transcript was made public. And when the determinations committee, as it’s called, issued a decision, a terse 300-word explanation was provided. As for CDS buyers, there was no opportunity for an appeal.
More…





Jim Sinclair’s Commentary

This trickle will become a torrent. It almost fits in the same psychology that is reducing demand for the dollar for international settlements sure to bring the dollar to .7250 on the out of date, silly, antiquated USDX Index.

German newspaper faults secrecy around Germany’s gold in New York By Ralf Schuler
Tuesday, March 6, 2012
NEW YORK — It’s the most valuable treasure we Germans have: 3,401 tonnes of pure gold — about 1,800 euros for each of us. Absolutely disaster-proof, divided between high-security vaults in Frankfurt, Paris, London, and New York. And the German Federal Bank (Bundesbank) isn’t looking after it!
The incredible gold scandal! On the 19th of November 2011, BILD magazine reported that the German Federal Bank last looked at our gold reserves in New York in 2007, and has thereby even alarmed the Federal Audit Office. (Inquiries are ongoing.)
A clear breach of the law, leading accountancy lawyer Prof. Jorg Baetge told BILD. "A tally of the ingots has to be made at least every three years." The Federal Bank hasn’t done that.
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Govt. sets record deficit in February By Stephen Dinan
11:31 a.m., Thursday, March 8, 2012
The federal government recorded its worst monthly deficit in history in February, according to a preliminary report Wednesday from the Congressional Budget Office that said the deficit in fiscal year 2012 is already more than half a trillion dollars.
The CBO’s figures show that despite repeated efforts to trim spending, the government has borrowed 42 cents of every dollar it spent during the first five months of this fiscal year.
The nonpartisan agency projected the government will run a deficit of $229 billion in February, the highest monthly figure ever. The previous high was $223 billion a year ago, in February 2011.
It is the 41st straight month the government has run a deficit — itself a record streak that dates back to the final months of President George W. Bush’s tenure. Before now, the longest streak on record was 11 months.
For all of fiscal year 2012, which began Oct. 1, the budget analysts said the government has raised $869 billion in revenue but spent $1.5 trillion so far.
Congress and President Obama sparred for most of last year on how to cut spending, but the CBO’s figures show that spending has actually remained flat in 2012 once the timing of certain payments has been adjusted.
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Jim Sinclair’s Commentary

The fact is they are already practicing global QE via swaps (with wink-wink permanent rollovers) from the Fed down the chain to cover the losses at ECB banks on sovereign debt.

Maybe the squids can sell the Fed a nice OTC derivative to hide the swaps.

QE is alive, and kicking, hiding in plain global sight. This is reverse MOPE to lay a foundation that the Fed is monetarily benign now. They are absolutely not!

Fed Move Likely by June, Ex-Insider Says By Randall W. Forysth
Wednesday, March 7, 2012
Morgan Stanley’s Vincent Reinhart says central bank is apt to ease before election season hits high gear.
Odds of more monetary stimulus from the Federal Reserve seem to get longer as the economic data improve. And the Federal Open Market Committee is unlikely to take further action at its one-day meeting next Tuesday.
But a long-time observer of Fed policy—from the inside and the outside—thinks another round of quantitative easing, or other measures, is likely later this year. Vincent Reinhart, Morgan Stanley’s chief U.S. economist, formerly was director of the Fed’s Division of Monetary Affairs and served as the FOMC’s secretary and economist, so he has seen things from both sides.
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Jim Sinclair’s Commentary

Yeah, sure. Tell that to the International Swaps and Derivative Association. I can hear the unanimous laughter already.

Hedge funds find loophole to trigger Greek default By Sarah White and Tommy Wilkes
LONDON | Thu Mar 8, 2012 5:18pm EST
(Reuters) – Some hedge funds have found a legal loophole they believe will force Greece to repay some of its debt in full, three sources close to the matter said on Thursday, in a move that would intensify the standoff between the country and its debtors.
Greece closed a bond swap offer to private creditors on Thursday after clearing the minimum threshold of acceptance to push the biggest sovereign debt restructuring in history.
Government officials said more than 75 percent of eligible bonds had already been committed resulting in losses of some 74 percent on the value of the debt in a deal that will cut more than 100 billion euros from Greece’s crippling public debt.
But because of a provision written into one particular bond, some hedge funds believe that Athens has already defaulted on that bond by asking bondholders to exchange their debt for new paper with a much lower value, according to the sources.
The funds are now trying to buy up enough of the bond — issued by state-owned Hellenic Railways and guaranteed by the government — to force Greece to repay them in full, to the tune of some 400 million euros.
More…

 

Jim’s Mailbox

March 8, 2012, at 10:53 am
by Jim Sinclair 

Jim Sinclair’s Commentary

The meeting of the Board of Governors of the Federal Reserve concerning the neutralization of QE3:




Ending QE is Not An Option

CIGA Eric

‘ The gold story will be told here and take root in Bernanke’s statement the business is improving. Improving business conditions, in turn, might lesson the need for QE. This is not true.’

Jim
Source: jsmineset.com
Jim’s short technical review discusses how economic misdirection, often described as MOPE on jsmineset.com, allows ‘connected interests’ to manage (and profit) a market through paper repositioning. The ‘improving business conditions’ interpretation which is difficult to definitively support in the markets provides the cover for paper control. For example, shrinking open interest as the U.S. Dollar Index rises illustrates one aspect of control (see chart below).
Chart 1: U.S. Dollar Index and the COT Futures and Options Open Interest Stochastic Weighted Average

While the improving business conditions argument provides headline fodder during election years, its ability to mitigate the West’s crippling debt burden is negligible at best. Debt pile has become too large to be solved by economic growth alone. At this point the only relevant questions about QE are how fast and how to hide it.
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Warm Winter May Have Cooked Economic Data – What?  
CIGA Eric

I have to admit, I’ve read a lot of bad headline explanations throughout the years. The “warm winter effect”, dominating the influences of infinite liquidity (QE), statistical ‘flexibility’ contained within nearly all government released data, and global capital flows, however, establishes a new threshold.

Headline: Warm Winter May Have Cooked Economic Data
The economic news has been pretty darn good of late. Employment is up and consensus estimates are looking for about 200,000 new jobs to be reported for February this Friday on top of the 241,000 jobs created in January. The unemployment rate is coming down, consumer confidence is up, and automobile sales were at a 15 million run rate in February, the highest in five years. What’s not to like?
Make no mistake, the economy is getting better, but we shouldn’t be misled by the seasonally adjusted data the government reports. Why? Normally economic activity is constrained in the winter months by cold weather, which limits outdoor work and at times prevent people from getting to work–think construction and office closings. The government’s statisticians adjust the data to reflect this very real phenomenon.
However, the National Oceanics and Atmospheric Administration just reported that we experienced the fourth warmest winter in history. Compared to last year, this winter has been absolutely balmy with the national average temperatures six degrees and five degrees warmer than last January and February, respectively. All of a sudden the seasonal adjustment factors which are looking for winter weakness don’t work the way they are supposed to as the unusually warm weather makes it look like the economy is going into over-drive.
Source: finance.yahoo.com
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Up Trend Resumption Requires Confirmation  
CIGA Eric
The test of previous resistance as support is always important. Smart money, highly disciplined and patient, waits for confirmation that the up trend will continue rather than blindly chasing short-term oversold readings (see chart below). Positive divergences between price and internal trend energy as well as a sharp contraction in volume during the testing process would favor trend continuation over reversal.
Chart: NYSE Composite


Headline: Stocks: Worst day of 2012

NEW YORK (CNNMoney) — Investors took a big step back Tuesday, but stocks have had a pretty strong year so far, so the retreat isn’t ringing any alarm bells.
"You’re still seeing echoes of the risk-on-risk-off trade," Jonathan Lewis, chief investment officer at Samson Capital Advisors. "But I would offer that all investors are doing is restructuring and rebalancing portfolios."
Since the start of the year, stocks have slowly and steadily made their way toward their highest levels since 2008, helped along by the U.S. economy’s steady improvement.
While March has not been a good month so far, the Dow is still up 4.4% for the year. The S&P 500 has gained nearly 7% and the Nasdaq is up 11.7% year to date.
Stocks were pressured Tuesday by weaker economic data out of Europe and rising yields on euro-area government bonds, said Lewis.
Source: money.cnn.com
More…




Hello Jim,

Who missed this:
Carlos Slim of Mexico City, the world’s richest man (3 years running) has a net worth of approximately $66 billion. Buffett of Omaha is the world’s 3rd richest man with $45 billion.
About a year or so ago Carlos Slim bought a silver mine in Mexico. The media never mentioned this.
Who is prepared, Buffett or Slim?

CIGA Don

Dear Don,

Slim, of course.

Jim

But Do The "Estimates" Make Sense?

Dave in Denver at The Golden Truth - 40 minutes ago

*"Americans are feeling wealthier now, they're borrowing more money now" *(Some dope on Good Morning America) There's no doubt the the second part of that statement is true. The latest consumer credit report showed that consumer debt rose substantially in January. The source was primarily credit cards and non-revolving credit - student loans and [Government-subsidized] auto loans. Can't find a job? Enroll at the University of Phoenix and get a robo-stamped student loan. Then the Government can remove you from the labor force statistics and a reduce the number of people not wo... more »

 

1-2-3 Bottom In Gold Ahead

Eric De Groot at Eric De Groot - 2 hours ago

Looks like the third count of a 1-2-3 bottom in gold. While this setup suggests a major turn in gold ahead, it will likely be ignored by many within the gold community. Fear and disinformation will be removing them from the gold train. Chart: London PM Fixed Gold and GLD (ETF) Total Assets WA Stochastic Special Donation To Insights Contribute to Insights By March 10th, One Silver Eagle... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] more »

 

MF Global Trustee Freeh Asks Court to Pay MF Global Executive Bonuses

more »

 

Geopolitical Risks Are Rising

Admin at Marc Faber Blog - 3 hours ago

Political risk was high six months ago and is higher now. I think sooner or later, the U.S. or Israel will strike Iran - it's almost inevitable. - *in a recent investment conference* *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* more »

 

Worry About 2013, Panic About 2014.

Admin at Jim Rogers Blog - 3 hours ago

This year’s fine. Worry about 2013. Be panicked about 2014. - *in CNBC* *Jim Rogers is an author, financial commentator and successful international investor. He has been frequently featured in Time, The New York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The Financial Times and is a regular guest on Bloomberg and CNBC.*

Gold Celebrates Formal Greek CAC Activation With $40 Intraday Move Higher

Minutes ago, the Greek cabinet formally announced that it has approved CAC use on Greek debt, which was the final milestone that ISDA was waiting for before making its determination. Most overjoyed by this appears to be gold, which has moved by nearly $40 from this morning's post-NFP (no "inflationary" QE3?) lows and was testing $1715 moments ago. Oh, and silver too. In other news, Zero Hedge is happy to sell CDS insurance on every bar of gold purchased by anyone, anywhere. Under UK, Greek or whatever alien law that will be needed in 2-3 years to bail out the world.

Part Time Workers Celebrate The Recovery With Soaring Gun Purchases

Following continued strength in earnings (and analyst upgrades), Smith & Wesson is up 23% this morning (near three year highs). It seems all those freshly printed temporary workers are spending their hard-earned minimum wage on 'defense' instead of iPads.
*SMITH & WESSON BOOSTS REV. FORECAST                    :SWHC US
*SMITH & WESSON 3Q EPS CONT OPS 8C, EST. 4C                :SWHC

 

The 18 Most Important Names For The Rally To Be Sustained

While everyone is focused on AAPL, or tech names, or energy sector growth, or multiple expansion as the driver of the next leg up in stocks, we take a slightly different tack. US equities are back above the highs of last year while US investment grade credit markets are still well below their best levels of last year. Until credit markets come along for the exuberant ride, and buy into the recovery/growth/no-tail-risk story we will not see a sustained rally (no matter how much fiat currency devaluation is undertaken) and as BARCAP notes today, there are 18 names that account for more than 50% of the discrepancy between equity's ebullience and credit curmudgeon-ness. Of these 18 names, 13 are financials (unsurprisingly) and indeed these are among the most liquid credits traded. So if you are bullish on a sustainable recovery, buying these credits seems the best high beta 'value' trade while bears should continue to watch the lack of confirmation of USD/fiat-numeraired equity market enthusiasm by risk-based credit markets.

European Sovereigns And Financials Close On Weak Tone

Once again European credit and equity markets flip-flopped intraday from a gap up open (yay, the PSI deal is done) to a modest financial-led selloff on weak data, to a non-financial-led small rally (with equity beating credit post US NFP) to a slide weaker into the European close. Financials (most notably senior unsecured) were the worst performers on the day as stocks managed small gains and credit bigger losses. European sovereign spreads also leaked wider all day after some initial excitement with Italian 10Y spreads 15-20bps off their best levels of the week into the close (and Portugal also leaking wider). US Treasuries continued to selloff as US equities limped higher but EURUSD is pushing back to the week's lows near 1.31 as JPY is also deteriorating (which is modestly stable for carry FX and implicitly risk). Commodities surged (seemingly on Goldman's GDP cut implying great er hopes of QE?) with Gold up over $1710 and almost unch for the week as WTI nears $108 again. As Europe closes, there is a modest derisking across all asset classes (with US and European financials the most obvious rollers). The Precious metals rip and Treasury weakness makes us wonder how much is QE-driven (especially given the sterilized propositions) and how much is simply a rotation to a different kind of safety or quality collateral? The LTRO Stigma is around 8bps (or 10%) higher on the week while Senior-Sub spreads are stable for now.

Guest Post: Backing Into World War III?

According to the doctrine of pre-emptive war, Iran can be attacked based on its alleged desire to develop nuclear weapons, just as Iraq was attacked in 2003. In fact, Congress is currently debating whether a nuclear capability alone (which Brazil, Japan, and other countries enjoy) could justify the 'preventive' attack. I believe it is time to negate this doctrine by postulating that Iran in fact has a right, as a sovereign nation, to a nuclear capability. Having traveled to Iran recently, I can attest to the Joint Chiefs' General Dempsey's reference to Iran as a 'rational' actor. The Iranians have no interest in destroying America, or Israel, at the expense of one of the oldest continuous civilizations in the world, dating back about 2600 years. Iran is currently surrounded by over 40 U.S. military installations, not counting Israel's still-unaccounted nuclear arsenal. To assert that Iran would jeopardize its culture for a one-shot nuclear attack is a complete miscalculation of the Iranian spirit; that spirit gave rise to a revolution in 1979 against what they perceived as Anglo-American imperialism in the form of the Shah, much as our own revolution opposed British imperialism.

Goldman Cuts Q1 GDP Forecast To 1.8% On Trade Deficit Surge

Moments ago we tweeted that today's surge in the trade deficit will force banks to start cutting GDP forecasts. Sure enough, Goldman as usual, is the first to set the tone, by cutting its ultra real time GDP forecast from 2.0% to 1.8%.

Why JPM Sees A "Lot More Printing" By The ECB

While the catalyst for much of the recent rally in risk assets seems to have been on the back of Europe clambering back from the edge of the abyss (and admittedly hope for better global growth and US decoupling), JPMorgan's Michael Cembalest notes that Europe remains very much an Achilles Heel going forward. With former ECB member Stark's recent comments on the already 'shocking' quality of the ECB's balance sheet, it is the outflows (or net balance of payments) from the periphery that means the ECB will simply have to keep printing. ECB funding of Spanish and Italian banks is still a relatively small part of their liabilities and should we see even a crack in the resilience of these knife-sitting nations, the retail depositors, bondholders, and non-local wholesale/retail money is unlikely to stay put (especially if there is the continued lack of growth that seems inevitable). The latest Spanish data is dreadful, as Cembalest notes, but the economic situation in France remains weak and while JPM's analysis looks for a gradual closure of the periphery's current account deficit by 2015, the ECB's need to finance the gap in the interim raises a critical question. Since the ECB's printing has boosted the US stock market primarily, will the Fed now take the lead and return the favor (QE3 or more) to help its European partners grow their (net trade) way out of this hole?

Fitch Downgrades Greece From C To Restricted Default - Full Text

It is not shocking that the worst of the worst rating agency has downgraded Greece to "Restricted Default" following the imposition of coercive measures to generate a "voluntary" restructuring. It is very shocking that Fitch had Greece at C until now...

The Part-Time Economy (Redux)

While not shocking to most, the jump in temporary workers that we cited earlier is perhaps the biggest indicator of job 'quality' gains. As we discussed here last month, the US market economy remains mired in a low quality (“first-fired, first-hired categories rather than the type of core hiring that would build a stronger foundation for income growth,”  as FTN's Jim Vogel describes it) recovery. About 160k of private jobs added in Feb are 'low-paying work' which left average hourly earnings up only 0.1% (notes David Ader at CRT) - hardly the recipe for a sustainable recovery and perhaps the slow leak in stocks post the number is the rude awakening to that reality. As w enoted before, "not only is America slipping ever further into a state of permanent "temp job" status, but that a "quality analysis" of the jobs created shows that the US job formation machinery is badly hurt, and just like the marginal utility of debt now hitting a critical inflection point, so the "marginal utility" of incremental jobs is now negative"

US Trade Balance Worst In 39 Months With Largest 3 Month Drop In 20 Years

While NFP dominated the headlines, the US Trade Balance (deficit) limped out and dropped far more than expected. At a $52.565bn Deficit, this is the worst trade balance since October 2008. Perhaps more shocking is the fact that the 3 month drop (rise in deficit) is the largest ever on record, dropping $9.4bn in that period. Unsurprisingly, the bulk of this drop is in the 'Petroleum' trade balance which has accelerated the most in the last 3 months (coincidentally dropping the most since last March and we know how that ended).

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