Posted: Jan 27 2011 By: Dan Norcini Post Edited: January 27, 2011 at 12:13 pm
Filed under: Trader Dan Norcini
Dear Friends,
This morning news came down the wires that the rating agency S&P had downgraded Japan’s sovereign debt from ‘AA’ to ‘AA-‘. This is no small development. The reality is that Japan’s finances are in even worse shape than those of the US when its overall indebtedness is compared as a percentage of GDP. Japan is approaching a debt to GDP ratio of nearly 200%! Yes, you read that correctly. The only nation in the entire world that is higher is Zimbabwe. In effect, the Japanese government spends 2 yen for even one yen of overall economic activity.
What this means is that the rating agencies, who are watching these sovereign debt woes which have struck various countries in the EU, are concerned about the same problem beginning to surface in other quarters around the globe. Quite simply they are looking at the huge deficits being run by many nations in the West (and Japan). In other words – TOO MUCH DEBT!
That led to selling in the long end of the US yield curve this morning as bond traders are starting to be more than a bit fearful that the same thing is going to happen to the US’s ‘AAA’ rating at some point in the future if the US does not get its financial house in order. They are watching massive amounts of QE2 and another ballooning of the federal budget deficit and are selling even as the Fed attempts to jam the market higher with its purchases. AT this point, the only thing holding the long end of the curve is the Fed. How long can that last especially without affecting the Dollar?
More and more we see the integrity of sovereign debt being brought into doubt which leads to the question among many investors; “what is a safe haven that is actually safe?” Who wants to take the chance of holding a nation’s bonds if overnight they face the real risk of being downgraded?
The real world impact of this is that nations whose debt gets downgraded will have to offer potential investors a higher rate of return to compensate them for the increased risk of holding their debt. For nations already hopelessly in debt, that means borrowing costs begin to rise forcing them to borrow even more money just to keep their heads above water. The whole thing becomes a vicious cycle with rising interest rates compounding the problem.
The US has been able to sneak by and thus far avoid a rating agency’s downgrade partly because its borrowing costs are so low. Should these agencies begin to train their sights on the US and give closer scrutiny to its miserable financial condition, there is a chance that a downgrade could follow. Such a development, were it to indeed occur, would force the US to offer higher rates of return on its debt. That of course would raise its borrowing costs at a time when it can least afford it not to mention short circuiting the QE policy which is deliberately designed to lower borrowing costs.
This is why the take down in gold, after yesterday’s nice performance, is so remarkable for its perverseness and why long term oriented holders of the metal should not be the least bit concerned as to the antics taking place in the paper market. Sovereign debt woes are not behind us – the problem lies squarely ahead of us and no amount of wishful thinking is going to change that hard reality.
This being said, one of the things we now want to monitor will be the performance of gold when priced in terms of the Yen.
Posted: Jan 27 2011 By: Jim Sinclair Post Edited: January 27, 2011 at 12:09 pm
Filed under: In The News
Jim Sinclair’s Commentary
It looks like the rubber has met the road in Congressman Paul’s activities.
Audit the Fed Reintroduced
Washington, DC – Congressman Ron Paul (TX-14) today introduced HR 459, The Audit the Fed Bill to the 112th Congress.
This legislation is very similar to HR 1207 from the 111th Congress and calls for a full and complete audit of the Federal Reserve by the Government Accountability Office, to be reported to Congress by the end of 2012.
HR 1207 garnered broad bi-partisan support with 320 cosponsors in the 111th Congress, and was attached (but removed in conference) as an amendment to the Dodd-Frank Financial Reform Bill.
In response to unprecedented public interest in the activities of the Federal Reserve, it hired a full time lobbyist for the first time in history during the 111th Congress.
“I was very pleased that so many of my colleagues were willing to stand up for transparency and accountability in government by cosponsoring HR 1207 in the last Congress. I am optimistic about our prospects for a full and complete audit in the 112th Congress,” stated Congressman Paul.
HR 459 has 56 co-sponsors at time of introduction.
More…
posted by Admin at Jim Rogers Blog - 1 hour ago
When the market seems like it is about to roll over, who you gonna call? Why future Treasury Secretary Jamie Dimon of course... Courtesy of IOIA, we now know whose ETF desk has a sole purpose in life to hit the Chairchopper's Russell 2000 target of 36,000 before June, when it all goes to hell.
Posted: Jan 27 2011 By: Jim Sinclair Post Edited: January 27, 2011 at 12:02 pm
Filed under: Jim's Mailbox
New Home Sales And Real Estate Slump
CIGA Eric
New home sales are notoriously volatile due to seasonality factors. Seasonality adjustments can cause unexpected strength in one month, only to be followed by unexpected weakness in the next. While new home sales unexpectedly surge, loan demand and various permutation of real estate credit generation fail to support it.
Total Bank Credit Table for All US Commercial Bank:
Follow the trends (money), not headlines influenced by statistical quirks. If the following trends can be interpreted into headline strength, I’d hate to see weakness.
New home sales, despite the unexpected monthly strength, continue contract year-over-year.
New Home Sales And Change YOY, SA:
There’s a lot of home supply to work through over the next few decades.
Months Supply And Change YOY:
Real median home prices continue to be confined within the sharp downtrend of 2005.
Median Home Price to Gold Ratio (MHPGOLDR) And YOY Change:
Headline: US new home sales at 8-month high, loan demand down
* New-home sales jump 17.5 pct in December
* Median home price highest since April 2008
* Home loans index slumps to lowest since mid-October (Updates with Fed statement)
Sales of U.S. new homes raced to their highest level in eight months in December, but gains were driven by a surge in the West that economists were reluctant to call a sign of the market’s recovery.
Single-family home sales jumped 17.5 percent to a seasonally adjusted 329,000-unit annual rate, the Commerce Department said on Wednesday. Economists had expected an increase to only a 300,000-unit pace.
Even with last month’s gain, new-home sales are down 75 percent from their peak of 1.283 million-unit pace in 2005.
December’s new-home sales were boosted by a 71.9 percent surge in the West that confounded economists, who viewed the strength as fleeting.
And in a sign that the housing recovery was still a long way off, an industry group on Wednesday reported an 8.7 percent drop in applications for new home loans last week.
Source: reuters.com
More…
Filed under: Trader Dan Norcini
Dear Friends,
This morning news came down the wires that the rating agency S&P had downgraded Japan’s sovereign debt from ‘AA’ to ‘AA-‘. This is no small development. The reality is that Japan’s finances are in even worse shape than those of the US when its overall indebtedness is compared as a percentage of GDP. Japan is approaching a debt to GDP ratio of nearly 200%! Yes, you read that correctly. The only nation in the entire world that is higher is Zimbabwe. In effect, the Japanese government spends 2 yen for even one yen of overall economic activity.
What this means is that the rating agencies, who are watching these sovereign debt woes which have struck various countries in the EU, are concerned about the same problem beginning to surface in other quarters around the globe. Quite simply they are looking at the huge deficits being run by many nations in the West (and Japan). In other words – TOO MUCH DEBT!
That led to selling in the long end of the US yield curve this morning as bond traders are starting to be more than a bit fearful that the same thing is going to happen to the US’s ‘AAA’ rating at some point in the future if the US does not get its financial house in order. They are watching massive amounts of QE2 and another ballooning of the federal budget deficit and are selling even as the Fed attempts to jam the market higher with its purchases. AT this point, the only thing holding the long end of the curve is the Fed. How long can that last especially without affecting the Dollar?
More and more we see the integrity of sovereign debt being brought into doubt which leads to the question among many investors; “what is a safe haven that is actually safe?” Who wants to take the chance of holding a nation’s bonds if overnight they face the real risk of being downgraded?
The real world impact of this is that nations whose debt gets downgraded will have to offer potential investors a higher rate of return to compensate them for the increased risk of holding their debt. For nations already hopelessly in debt, that means borrowing costs begin to rise forcing them to borrow even more money just to keep their heads above water. The whole thing becomes a vicious cycle with rising interest rates compounding the problem.
The US has been able to sneak by and thus far avoid a rating agency’s downgrade partly because its borrowing costs are so low. Should these agencies begin to train their sights on the US and give closer scrutiny to its miserable financial condition, there is a chance that a downgrade could follow. Such a development, were it to indeed occur, would force the US to offer higher rates of return on its debt. That of course would raise its borrowing costs at a time when it can least afford it not to mention short circuiting the QE policy which is deliberately designed to lower borrowing costs.
This is why the take down in gold, after yesterday’s nice performance, is so remarkable for its perverseness and why long term oriented holders of the metal should not be the least bit concerned as to the antics taking place in the paper market. Sovereign debt woes are not behind us – the problem lies squarely ahead of us and no amount of wishful thinking is going to change that hard reality.
This being said, one of the things we now want to monitor will be the performance of gold when priced in terms of the Yen.
Posted: Jan 27 2011 By: Jim Sinclair Post Edited: January 27, 2011 at 12:09 pm
Filed under: In The News
Jim Sinclair’s Commentary
It looks like the rubber has met the road in Congressman Paul’s activities.
Audit the Fed Reintroduced
Washington, DC – Congressman Ron Paul (TX-14) today introduced HR 459, The Audit the Fed Bill to the 112th Congress.
This legislation is very similar to HR 1207 from the 111th Congress and calls for a full and complete audit of the Federal Reserve by the Government Accountability Office, to be reported to Congress by the end of 2012.
HR 1207 garnered broad bi-partisan support with 320 cosponsors in the 111th Congress, and was attached (but removed in conference) as an amendment to the Dodd-Frank Financial Reform Bill.
In response to unprecedented public interest in the activities of the Federal Reserve, it hired a full time lobbyist for the first time in history during the 111th Congress.
“I was very pleased that so many of my colleagues were willing to stand up for transparency and accountability in government by cosponsoring HR 1207 in the last Congress. I am optimistic about our prospects for a full and complete audit in the 112th Congress,” stated Congressman Paul.
HR 459 has 56 co-sponsors at time of introduction.
More…
*“Throughout history, go back and look, you know we had huge inflation in the 70s, stocks were not in a good place to be. This is the time when you should own real assets, not stocks and bonds*.” - in CNBC...
Guest Post: The Big Squeeze - Predicting The Effects Of Savings Extortion And Abuse Of The Middle Class
Four Reasons Why The Government Is Destroying The Dollar
JPM To Save The Day
Submitted by Tyler Durden on 01/27/2011 12:29 -0500When the market seems like it is about to roll over, who you gonna call? Why future Treasury Secretary Jamie Dimon of course... Courtesy of IOIA, we now know whose ETF desk has a sole purpose in life to hit the Chairchopper's Russell 2000 target of 36,000 before June, when it all goes to hell.
Posted: Jan 27 2011 By: Jim Sinclair Post Edited: January 27, 2011 at 12:02 pm
Filed under: Jim's Mailbox
New Home Sales And Real Estate Slump
CIGA Eric
New home sales are notoriously volatile due to seasonality factors. Seasonality adjustments can cause unexpected strength in one month, only to be followed by unexpected weakness in the next. While new home sales unexpectedly surge, loan demand and various permutation of real estate credit generation fail to support it.
Total Bank Credit Table for All US Commercial Bank:
Follow the trends (money), not headlines influenced by statistical quirks. If the following trends can be interpreted into headline strength, I’d hate to see weakness.
New home sales, despite the unexpected monthly strength, continue contract year-over-year.
New Home Sales And Change YOY, SA:
There’s a lot of home supply to work through over the next few decades.
Months Supply And Change YOY:
Real median home prices continue to be confined within the sharp downtrend of 2005.
Median Home Price to Gold Ratio (MHPGOLDR) And YOY Change:
Headline: US new home sales at 8-month high, loan demand down
* New-home sales jump 17.5 pct in December
* Median home price highest since April 2008
* Home loans index slumps to lowest since mid-October (Updates with Fed statement)
Sales of U.S. new homes raced to their highest level in eight months in December, but gains were driven by a surge in the West that economists were reluctant to call a sign of the market’s recovery.
Single-family home sales jumped 17.5 percent to a seasonally adjusted 329,000-unit annual rate, the Commerce Department said on Wednesday. Economists had expected an increase to only a 300,000-unit pace.
Even with last month’s gain, new-home sales are down 75 percent from their peak of 1.283 million-unit pace in 2005.
December’s new-home sales were boosted by a 71.9 percent surge in the West that confounded economists, who viewed the strength as fleeting.
And in a sign that the housing recovery was still a long way off, an industry group on Wednesday reported an 8.7 percent drop in applications for new home loans last week.
Source: reuters.com
More…
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