Three Charts Your Stockbroker Won't Want You To See

While every long-only manager and jobbing stockbroker is hard at work twisting the simple logic of 'but, but Central Banks will print and save the world' into a much more appetizing 'US decoupling, cleanest-shirt, ignore Europe, earnings, profits, money-on-the-sidelines' euphemism, we note that the following three charts from UBS suggest that things are not quite as rosy as one might believe - whether or not Ben speaks monetarily this week. Between consensus growth expectations rolling over, the analyst upgrade/downgrade ratio turning negative once again, and recent changes in US growth remain positively ecstatic relative to global/regional changes; it would appear hope is a powerful (and hallucinatory) drug (as is QE kool-aid).

The Experiment Has Failed. Are You Ready?

After about an hour’s worth of air traffic congestion delays around JFK airport, I finally departed New York City yesterday evening en route for Vilnius, Lithuania… one of my favorite inconspicuous corners of Europe. The route took me through Helsinki, Finland for a brief connection, and I was on the ground long enough to witness something truly bizarre: a complete and utter lack of people. I could practically count on two hands the number of passengers milling around the airport this morning during peak business hours… it was almost something out of a zombie movie. Ordinarily I would have seen hundreds, thousands of people… and I have in the past as I’ve traversed this route many times before. And no, today was not a holiday.

Update on the Greek Political Situation

Gold Stocks Recover from Late Friday Afternoon Mauling

Trader Dan at Trader Dan's Market Views - 1 hour ago

AS many of you no doubt are aware, there appeared to have been some sort of coordinated bear raid on many of the smaller gold companies late Friday afternoon, particularly in the aftermarket hours when trading conditions are at their absolute thinnest. The entire sector however is getting a firm bid in today's session even with the metals initially lower. Their strength seems to be pulling both gold and silver higher. The HUI is closing in on very stubborn chart resistance in the 460 region. This region marked the bottom of a consolidation period back in March of this year and is n... more » 

 

On Egyptian Elections And Israeli Escalations

The full results of the Egyptian election will not be 'released' until the 21st but as Stratfor's Reva Bhalla notes, the Muslim Brotherhood is already claiming a narrow victory over the military's preferred candidate. Rather sadly, she opines, "the Presidency itself may not even matter much as the military has taken a series of moves in recent days to overtly reassert its authority over the Egyptian political system", further reinforcing Stratfor's historical position that Egypt's political future will be dictated (ironic choice of words) by the military and not by protesters in Tahrir Square. In a succinct 4 minutes, Reva explains why the possibility of a Brotherhood victory remains somewhat impotent given the implicit understandings with the military (via the constitution) but worries that the changes in the clamp-down efforts (more aggressive) of political protests will affect political affiliates in the Palestinian border-lands with Israel - where this weekend's 'suspiciously timed' renewed spate of attacks into Israel raises questions of who was responsible (and for what end?). The bottom-line is that tensions remain and the Brotherhood's links to Hamas are a political foil for the military (or even Israel's Netanyahu) to declare them unfit to rule.

As Italy Hints Of Subordination, Did Rome Just Request A "Semi" Bailout?

That Italy is now at most days away from technical insolvency is not news: after all we reported on just this a week ago, citing not some fringe lunatics but Bloomberg economist David Powell who said that "Italy would probably be forced into receiving a bailout if it were to face another two weeks like the last seven days." This was a week ago... so one more week left, and things have not only not gotten better, they have gotten much worse. Which is why we were not very surprised to read the following just released news from Reuters: "Italy will push this week at a meeting of euro zone finance ministers for a semi-automatic mechanism involving the European Central Bank or the permanent bailout fund ESM to reduce spreads of euro zone bonds over Germany, Italy's European Affairs Minister Enzo Moavero said on Monday." Having done this for a while, we can tell Italy what the bond market, having perused the above sentence, just read: "semi-bailout." Because if Italy is implicitly demanding assistance from the ECB, and the Spanish bailout vehicle, the ESM, then things are about to hit the country with the €1.25 trillion in debt. It is all downhill from there. Oh, and here is what the bond market reads when they see ESM: "not so semi-subordination." Because if in Europe the idiotic plan to avoid a bank run is to announce preparations for one, followed by furious back pedaling, it is only logical (and we use the term loosely) that an attempt to avert a bailout will be pursued by requesting a semi version. Instead, that action always and only leads to one thing: waving the sellers right in.

 

In The News Today

June 18, 2012, at 12:54 pm
by Jim Sinclair

My Dear Extended Family,

Of all the madness I have seen in markets over the last 50 years, today takes the cake.

My take on it is:

Mrs. Merkel can already taste the joy of being President of Euroland. Hollande is getting ready to set the stage for his growth solution to the euro mess. The entire western world economy is falling off a cliff. The West wants to bomb Syria into the dark ages but might meet Russia head on there.

Gold continues to overcome the bears.

The shorts of the euro are emboldened, but not necessarily as right as they think they are. Dollar strength has no fundamental backing, but benefits from the mirror image of the euro.

I recommend that you shut your ears to the multitude of experts, especially those on Financial TV that claim to have never been wrong.

Everything we expect is what will happen when it is all said and done.

Respectfully,
Jim

Jim Sinclair’s Commentary

This week? That is a reach but eventuality there is no other option.

Operation TWIST is a sick joke under present conditions with institutions disfavoring lending.

Quantitative Easing: Back in Vogue at the Fed
The behaviour of risky assets during Q2 has given central banks much to think about. Economic data released during the quarter has been broadly consistent with deceleration in global economic growth. US economic growth during Q2 was probably running at around +2%. The politically-sensitive US unemployment rate has failed to improve significantly in 2012, while gains in non-farm payrolls have clearly moderated from impressive weather-assisted increases during Q1. A continuation of strong payroll gains into Q2 would have ruled out any chances of further quantitative easing by the Fed. The economic environment over which the Fed currently presides strongly suggests that we will see another tranche of quantitative easing, potentially as early as this week. 

Domestic Reasons for Further Quantitative Easing
The Fed is legally independent, but its actions are held accountable to Congress. There are 3 policy mandates: 1) maximum sustainable employment, 2) price stability, and 3) moderate long-term interest rates. The current 8.2% level of US unemployment is above the so-called “natural” rate. The Fed would ideally like to see the headline unemployment rate drop further. Assuming the Fed believes that elevated unemployment is largely cyclical, reflecting weakness in aggregate demand, then further quantitative easing can be justified with the view to supporting labour demand.
The effects of changes in monetary policy are invariably felt after a lag. The generally accepted lag is 12-18 months. Therefore, it is in the interests of the Fed to anticipate changes in economic conditions. The Fed has formally embraced “forecast-based” policy under Chairman Bernanke. A further round of quantitative easing could be justified by lower economic growth forecasts by Fed staff members. There is an excellent chance that the Fed will lower its so-called “central tendency” forecasts at the next FOMC meeting on June 19-20.
The minutes to the next FOMC meeting, which would confirm any downgrading to the Fed’s economic forecasts, will be released on July 11. From a political standpoint, the Fed would like to sit on the side during a Presidential election year to avoid possible accusations of political bias. This option in 2012 may not be available. Notwithstanding the real possibility of a decelerating global economy, the chances of a severe tightening of US fiscal policy also loom large.

US Monetary Policy Needs to Offset Tighter Fiscal Policy
The looming expiration, at year-end, of the Bush-era tax cuts and emergency unemployment insurance potentially produces a very significant tightening of US fiscal policy (5% of GDP). In fact, the prospective tightening is unprecedented. The last occasion fiscal policy was tightened by anything approaching this order of magnitude was in 1969. The economy was plunged into recession by a simultaneous tightening of both fiscal and monetary policies. The Fed will be keen to avoid a repeat of the 1969 episode.
US Private Sector Could React Badly to Fiscal Uncertainty
The US private sector delayed risk-taking decisions during last summer’s political standoff in raising the debt ceiling. It is widely discounted that any serious discussions aimed at reducing fiscal tightening will be delayed by the Presidential election campaign. This backdrop implies that the lame-duck session of Congress after the election will have just 6 weeks to dilute prospective fiscal policy tightening. Furthermore, the US will, once again, be nearing its debt ceiling limit after the election, enhancing the chances of another damaging political standoff.
Given the partisan nature of pursuing policy agendas, the Fed has probably already discounted tighter fiscal policy in 2013. The real unknown is how the private sector, faced with uncertainty about the future tax regime, will change its behaviour. Will hiring and investment plans be shelved once again? Against this backdrop, the Fed could easily justify further easing as an insurance policy against weaker growth in 2013.

External Reasons for Further Quantitative Easing
The US dollar enjoys special “safe-haven” status during times of uncertainty and risk-aversion. It is hardly surprising that the US currency has benefitted during the eurozone crisis. We are reaching judgment day about the tenability of the eurozone’s current structure. Markets have recently been focussing on the financial implications of Greece exiting the single currency. These concerns may have been temporarily dispelled by the outcome of yesterday’s general election in Greece. There is still, however, a significant chance that Greek membership of the euro will again come under intense market scrutiny. 
Much depends on the nature of any potential exit by Greece. A disorderly exit could trigger another period of elevated stress in financial markets. Without doubt, there would be a huge scramble for US dollars, Swiss francs and, possibly, Japanese yen. The Fed would, without question, boost its dollar swap liquidity lines with other central banks. This would de facto boost the size of the Fed’s balance sheet, constituting another form of quantitative easing.

Foreign Considerations Extend to the BRIC’s
The global recovery from the Great Recession has been based on different growth paths between the developed and emerging economies. High levels of private debt in the developed world have meant that deleveraging has been a significant headwind to returning to “normal” rates of growth. Meanwhile, emerging economies, less encumbered with high leverage, have been the engine of global growth. It now appears, however, that Brazil, Russia, India and China (BRIC) are experiencing slower-than-expected growth. This has forced central banks in the BRIC’s to either ease or re-think policy stances.
There has effectively been convergence in the global economy in 2012 via slower growth in the BRIC’s. The US dollar against emerging market currencies has appreciated 5% in nominal terms and 3% in real terms since February. This constitutes an effective tightening, albeit modest, of US monetary conditions with implications for economic growth. Countries with appreciating currencies will import deflation and export growth, while those countries with depreciating currencies will import growth and export deflation. The Fed would be unwilling to witness significant amounts of deflation being imported into the US, because real debt burdens would rise and subsequently restrict US economic growth.
The Fed has, therefore, two additional reasons to engage in further quantitative easing, based on foreign considerations. Firstly, slower growth in the BRIC’s could threaten to de-rail the current global economic expansion if there is not more robust US growth. Finally, appreciation of the US dollar versus emerging economies’ currencies represents a de facto tightening of US monetary conditions during a time of US private sector deleveraging. Fed Chairman Bernanke could easily argue that easier US monetary policy is required to match easier conditions in emerging markets.

Summary and Conclusions
Slowing global economic activity has become increasingly evident in 2012 Q2. Easier monetary policy is the only effective offset. The US faces a very significant tightening of fiscal policy in 2013. The private sector cannot fill this vacuum. The risk is that any moves to ease the degree of fiscal tightening will be embedded with discussions about how to raise the debt ceiling. This could significantly impact private sector confidence in an adverse manner.
The Fed has enough reasons, both foreign and domestic, to justify further quantitative easing as an insurance policy against economic weakness. The easing could be through further asset purchases or expanded dollar liquidity swaps with other central banks. Having to engage in any policy easing much closer to the election would be politically contentious and economically carry greater risks.




Jim Sinclair’s Commentary

Austerity is over in Euroland. Austerity in Euroland was maximized with Hollande’s advent.

Hollande will soon seek further inroads into his growth strategy.

Don’t write me nasty grams. I simply report on what is, not on what you or I would favor.

Euro Chiefs Signal Greek Austerity Softening As Summit Looms By Patrick Donahue – Jun 18, 2012 5:13 AM ET
European governments signaled a willingness to relent on Greece’s austerity measures as leaders turn from an election victory by Greek bailout proponents to focus on safeguarding the other 98 percent of the euro economy.
Greece’s new government must emerge “swiftly” from yesterday’s contest, which showed pro-bailout New Democracy in a position to form a coalition, euro finance chiefs said in a statement. German Foreign Minister Guido Westerwelle said negotiators could consider giving Greece more time to fix its finances, telling ZDF television that the political gridlock over the past six weeks “has done damage.”
Greece’s international monitors will “return to Athens as soon as a new government is in place to exchange views with the new government on the way forward,” the finance ministers said in the statement. They want “the swift formation of a new Greek government that will take ownership of the adjustment program.”
The election result in the country where the debt crisis began in 2009 paves the way for euro leaders’ fourth make-or- break summit in a year. While Chancellor Angela Merkel warned global leaders last week that Germany rejected what she called quick-fix management of the crisis, a softening of the terms of Greece’s bailout may provide a template for how euro leaders overcome policy differences.
More…




Jim Sinclair’s Commentary

Should the West initiate the bombing of Syria if it seems that others might react, increasing the risks?

Russian marines to bulk up Syrian regime 6:05 AM, June 18, 2012 ι Abby W. Schachter
Talk about an unfair fight. Not only is the Syrian dictatorship being supported by Iranian Revolutionary Guard troops but now the Russians are sending marines to the ravaged country .
Seems the Russians are so concerned about their citizens in Syria and their naval base that highly trained troops are the answer.
Apparently, evacuation wasn’t an option.
And as negotiations between Iran and the West resume in Moscow this week, is this move simply the Russians’ way of telling the Americans and Europeans how forcefully they will protect their own interests?
The US was reluctant to send any real support to the Syrian opposition before this point. Difficult to imagine that the prospect of encountering Russian fighters protecting the regime will encourage the Obama administration to really get
More…

 

Jim’s Mailbox

June 18, 2012, at 12:49 pm
by Jim Sinclair

Jim,

Here is an example of further industry consolidation today.
CIGA Michael Martin

Oppenheimer & Co. Inc. 750 Washington Boulevard
Stamford, CT 06901
203 975-2081 Direct
203 328-1199 Fax

Yamana Gold to buy Extorre Gold for C$413 million Mon Jun 18, 2012 8:03am EDT
(Reuters) – Yamana Gold Inc (YRI.TO) said it would buy Extorre Gold Mines Ltd (XG.TO) for C$412.9 million ($403.44 million) in a cash-and-stock deal, to build its portfolio of high-grade gold and silver deposits in Argentina.
Yamana’s offer of C$4.26 per share is 68 percent higher than Extorre’s Friday close. Extorre stockholders will receive C$3.50 in cash and 0.0467 of a Yamana share for each share they own.
"It is a relatively small transaction in that it represents only 3 percent of Yamana’s market capitalization yet it could ultimately deliver more than 10 percent of our total gold equivalent production," Yamana’s CEO Peter Marrone said.
Yamana, which has a market value of C$12.20 billion, plans to increase gold equivalent production by 60 percent to about 1.75 million ounces over the next two years, the company said in its 2011 annual report.
Extorre’s most advanced project is the Cerro Moro property in Santa Cruz, Argentina, which has indicated resources of 1.36 million ounces of gold equivalent mineral resources.
More…

Greek Vote Latest Excuse for Cartel Gold & Silver Raid

from Silver Doctors:

With Sunday’s Greek vote threatening to extend the current status quo indefinitely in Greece in Europe as Syriza was unable to win a majority in the Greek elections, silver gapped above $29 on Sunday night’s Globex open. As this obviously could not be allowed, it was instantly beaten down to $28.40, and sent as low as $28.21 in early COMEX trading this morning.
Gold received an even more blatant manipulative take-down, opening up $2 before immediately being smashed $20 lower to $1610.
Does anyone think gold and silver would have traded any differently had Syriza won the elections outright and the markets opened in a panic? The cartel would have taken the opportunity to take down the metals in an epic way and claimed it was ‘dollar strength’.
Read More @ SilverDoctors.com

The Insects Are Watching: The Future of Big Brother Surveillance

by Jacque Fresco, Hang The Bankers:

In June of 2011, the US military admitted to having drone technology so sophisticated that it could be the size of a bug.
In what is referred to as the “microaviary” on Wright-Patterson Air Force Base, drones are in development and design to replicate the flight patterns of moths, hawks and other air-borne creatures of the natural world.
Greg Parker, aerospace engineer, explains: “We’re looking at how you hide in plain sight” for the purpose of carrying out espionage or kill missions.
Cessna-sized Predator drones, used to carry out unmanned attacks, are known around the world. The US Pentagon has an estimated 7,000 aerial drones in their arsenal.
In 2011, the Pentagon requested $5 billion for drones from Congress by the year 2030.
Read More @ HangTheBankers.com

The Tyranny of Dependency and the Way Out

by Vincent Bressler, Gold Seek:
We are on the cusp of world changing events.
An urgent need for security and self sufficiency is growing as the old systems break down. The same urgent need drove Roman citizens into the feudal estates of the dark ages. During the decline of the Western Roman Empire, the ultra wealthy left the big cities and established vast rural estates outside of the laws of the Empire. Small, independent farmers and business owners could not survive outside of the protection of the rural estates and thus became vassals within them. The ultra wealthy estate owners needed the people to produce everything for them. The people needed the protection of the ultra wealthy estate owners.
But today, the ultra wealthy can break their dependency on other human beings.
Read More @ GoldSeek.com

Austerity Hostage: Greece Races to Form Coalition as Cash Dwindles Amid EU Demands

from Bloomberg:
Greece’s two traditional political
rivals are in a race to forge a coalition as the state’s cash dwindles, bank deposits flee and Europe demands renewed austerity pledges before releasing more emergency aid.
The euro erased an initial advance, stocks fell and borrowing costs in Spain and Italy surged on concern an election
win by Greece’s biggest pro-bailout party would provide only a brief respite from Europe’s financial crisis.
Read More @ Bloomberg.com

SHTF Ideas For Food, First Aid, Hiding Goods & Vehicles

from DEMCAD:

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