U.S. Economy Grew 2.4% in Second Quarter, Below Forecast
By Timothy R. Homan – Jul 30, 2010 6:41 AM MST

Growth in the U.S. slowed to a 2.4 percent annual rate in the second quarter, less than forecast, reflecting a larger trade deficit and an easing in consumer spending.

The increase in gross domestic product compared with a median forecast of 2.6 percent of economists surveyed by Bloomberg News and follows an upwardly revised 3.7 percent pace in the first quarter that showed a jump in inventories, according to figures from the Commerce Department today in Washington. Business investment climbed at the fastest rate since 1997.

“The economy is muddling through,” Ethan Harris, head of North America economics at Bank of America-Merrill Lynch Global Research in New York, said in an interview after the report. “We’re probably not going to see a really strong number for a while. We need to see some pickup in job growth.”

A slower pace of growth means employers may be reluctant to hire workers and more likely to keep a lid on prices in order to boost sales. Federal Reserve Chairman Ben S. Bernanke last week said the central bank is prepared to take further policy actions if the world’s largest economy “doesn’t continue to improve.”

The Standard & Poor’s 500 Index dropped 1.1 percent to 1,089.97 at the 9:36 a.m. in New York. The yield on the 10-year Treasury note fell 6 basis points, or 0.06, to 2.92 percent.

Median Forecast

The projected gain in GDP was based on the median estimate of 81 economists surveyed. Forecasts ranged from gains of 1 percent to 4 percent.

The worst U.S. recession since the 1930s was even deeper than previously estimated, reflecting bigger slumps in consumer spending and housing, according to the Commerce Department’s annual revisions also issued today.

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Jim Sinclair’s Commentary

3 bank failures so far this weekend

Bank Closing Information – July 30, 2010
These links contain useful information for the customers and vendors of these closed banks.

Coastal Community Bank, Panama City, FL
Bayside Savings Bank, Port Saint Joe, FL
NorthWest Bank & Trust, Acworth, GA

http://www.fdic.gov/

Jim Sinclair’s Commentary

Both you and I need to follow the real stats.

This for payment service is an absolute necessity to me.

Harry Schultz, Shadow Stats and JSMineset should provide all you need for gold.

- Worst Economic Downturn Since World War II Just Got Worst
- Bulk of First-Half GDP Growth Due to Inventories, Setting Up Likely Third-Quarter Contraction
- Lingering Market Hopes for Recovery Should Fade Quickly

"No. 313: Second-Quarter GDP and Revisions "
http://www.shadowstats.com/article

Jim Sinclair’s Commentary

John Embry is spot on. The title tells you all.

Gold’s On The Cusp Of A Parabolic Move Up
John Embry

Gold moved to several new all time highs in the month of June despite the absence of any overt enthusiasm for the yellow metal amongst the general public. Sentiment is remarkably negative when one considers the fact that were it any other asset class making new highs in a powerful multi-year bull market, the mainstream press would be trumpeting the news and the public would be falling all over themselves to buy.

Link to full article…

Wall Street edges lower as investors mull slow recovery
CIGA Eric

Stocks fell on Friday, rebounding for a second day in a row from more substantial losses, as concerns about slower economic growth held trading to a tight range.

Do not associate a technical sell-off with any significant economic conclusions. The direction for stocks, sitting at or near support, will have little to do with lie and deny economic data series. Capital flows, seeking protection against further currency debasement, are driving this market.

As for the slow recovery, my response to that is what did you expect? Consumption, the main driver of US national income, is beginning to fade as the size of the stimulus begins to fade and America begin to defy pop culture by saving. That’s right saving a portion of their incomes. In addition, the engine of future growth, domestic private investment, remains flat at best, and the structural trade deficit is beginning to reassert itself. Government consumption and investment, based largely federal spending, continues to support a weakening private sector.

In other words, the massive quantitative easing to date has done affect the economic trends that are just beginning to intensify.

Personal Consumption Expenditures (PCE) As A %GDP and Personal Consumption Expenditures As A %GDP Average from 1947:

Gross Domestic Private Investment (GDPI) As A %GDP and Gross Domestic Private Investment (GDPI) As A %GDP Average from 1947:

Net Exports (NETEX) As A %GDP and Net Exports (NETEX) As A %GDP Average from 1947:

Government Consumption Expenditures and Gross Investment (GCEI) As A %GDP Average from 1947:

Federal Consumption Expenditures and Gross Investment (FED) As A %GDP and Federal Consumption Expenditures and Gross Investment (FED) As A %GDP Average from 1947

Savings (SAV) As A %GDP and Savings (SAV) As A %GDP Average from 1947:

Source: news.yahoo.com

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Time to Accumulate metals and mining stocks-UBS
CIGA Eric

Word continues to leak out, buried within the deep recesses of the Internet, despite the selling-induced fear created by the paper operation. As we have been saying for awhile, it will be today’s enemy of gold – bullion banks and agents rather than the gold community that will profit most from gold’s secular rise.

Positive View on Gold

"We believe that ongoing pressure on sovereign debt markets, combined with persistent concerns over private sector credit contraction will raise the spectre of debt monetization repeatedly over the next few years," the analysts advised. "We expect that this background will remain very supportive for gold prices over the period, and that informs our above consensus gold price outlook and our inclusion of two gold stocks in our top ten picks…"

Source: mineweb.co.za

More…

Dear CIGAs,

At long last we are now offering Compendium Version 3 for sale. There will also be a very limited printing of Compendium Version 1 and 2 for sale as well. If you want a copy I suggest you order it while you have the chance.

We release Compendiums every couple years to help cover the operating costs of running a site like JSMineset. Over the years we have gotten quite large and these costs have grown substantially. If you like what we do here please purchase a copy – you will be supporting a good cause and allow us to continue providing this service free of charge.

**PLEASE NOTE YOU DO NOT NEED A PAYPAL ACCOUNT TO PURCHASE ANY OF THE COMPENDIUM SETS. COMPENDIUMS SHOULD ARRIVE WITHIN 2-4 WEEKS DEPENDING ON YOUR LOCATION**

What you will receive with each set:

**NEW** Compendium Version 3 ($80 USD):

Included in this two DVD set is a DVD Rom (accessible by computer DVD drive only) that is a searchable database of nearly two thousand articles over the last two years from Jim Sinclair, Trader Dan, Monty Guild and a collection of other JSMineset contributors. This is one of the largest collections of articles related to the Gold market available today on DVD and includes all charts we have posted over the last year and a half.

The second DVD is the much anticipated CIGA Meeting in Toronto from February 2010. This DVD includes over 3 hours of discussions with Jim Sinclair himself and is playable in any DVD player.

**NEW** Compendium Version 1-3 Package ($210 USD):

This package includes Compendium 1 & 2 listed below and the new Compendium 3 above.

Compendium Version 2 ($80 USD):

Compendium Version 2 includes all articles posted from December 2005 to the end of October 2008. All articles are categorized and presented in HTML format and are PC and Mac compatible. Several thousand articles are again included in this archive disc which makes up literally thousands of pages of market commentary from Jim himself. Compendium Version 2 also includes an hour long DVD video commentary on financial markets by Jim Sinclair. This disc is playable in any DVD player and any computer that supports DVD playback.

Compendium Version 1 ($50 USD):

Compendium Version 1 includes all articles posted from the inception of JSMineset in 2002 to December 2005. It comes packaged as a searchable PDF database and includes several thousand articles on Gold and financial markets. As a bonus, a separate Technical Analysis video disc by Jim Sinclair is included in the package. This video is viewable on a computer only and is both PC and Mac compatible.

Compendium Version 1 & 2 Package ($130 USD):

This package includes both compendium 1 & 2 which are shown above.

As you have noticed by this point, JSMineset does not subsidize costs with garbage advertising nor do we ever promote products through our free eblast system. If you feel JSMineset has helped you over the years, purchase Compendiums 1, 2 and/or 3 and help keep us alive! For the price you pay the information you receive is unbeatable and you know it is going to a good cause.

All prices are in US dollars and include shipping and handling.

Thank you all for your continued support!

Dan Duval
JSMineset Editor

Dear Monty,

China knows the evil of over the counter derivatives. They handle substantial financial fraud as a capital crime.

Going forward, listed derivatives with a clearinghouse function, margin requirements and standardized contract points can exist without endangering either China or the world. China has no significant backlog of the OTC type weapons of mass financial destruction. The Western World is overhung by $1.4 quadrillion dollars of notional value OTC derivatives before the BIS went to the cartoon value of "value to maturity," the ultimate Pollyanna computer fabrication. The size of the OTC weapons of mass financial destruction has grown during the crisis that they are in fact responsible for.

China, who considers major white collar crimes as capital crimes ( punishable by death), will not screw up themselves and the world in their version of the credit default LISTED derivatives.

Asia and Africa is where the future is. Now it is go East young man, go East.

China in Asia, and Tanzania in East Africa are the pots of gold at the end of the rainbow.

Regards,
Jim

 

Dear CIGAs,

WHY DOES HIGH PRICED REAL ESTATE SELL SO EASILY IN CHINA?

China appears to have a huge "grey" economy, meaning that it is fueled by grey or unreported income.  On July 19th, China’s most famous researcher on grey income, Dr. Wang Xiaolu, stipulated that actual urban household income may be 100 percent higher than the official data reported by the government.  He also concluded that China’s per capita disposable income in 2008 should have been 67 percent higher than the official data.

Dr. Wang goes on to say that China’s national housing affordability ratio (the ratio of  average home prices to average income) should have been about 2.8x in 2008, and is about 3.5x currently, which are lower than in many developed countries.  His research concludes that the income gap between the top 10 percent and bottom 10 percent of the population was 26x; considerably higher than the government’s estimate of 9x.

In our opinion, this goes a long way to explain why the wealthy continue to buy real estate, and how they can afford the high prices.  It also explains why the government is so intent to spend national resources to build low income housing and to stop the speculation in high priced status properties so the wealth gap does not continue to escalate. China’s leaders consider, among other things, the Confucian ideal of moderation and a cohesive society in their planning.  Clearly, huge income and wealth disparities undermine these Confucian ideals.

CHINA TO IMPLEMENT CREDIT DEFAULT SWAPS IN THE SECOND HALF OF 2010; THIS WILL CHANGE THE WAY THEY MANAGE THEIR ECONOMY

China’s National Association of Financial Market Institutional Investors (NAFMII) recently announced their plan to launch a market for credit default swaps.  In China, these will be known as credit risk mitigation (CRM) contracts.  The NAFMII report said Chinese credit derivatives must follow the principles of simplicity and transparency and cater to the ‘real’ economy.

Economical management is paramount in China.  For years, the central government has allowed local governments to create economic growth through activities such as selling real estate to developers who in turn create housing and large commercial developments.  The ultimate effect of this has been more employment and more demand for raw materials.  Now, the Central Government is reigning in local government flexibility, and is going to manage the money supply by growing it and shrinking it in a manner similar to the U.S. Federal Reserve.  Furthermore, they will expand a bond market for Chinese government bonds and begin to use bond issuance as a method to control the money supply in China.

CHINA PLANS TO CHANGE THEIR ECONOMIC MODEL TO AVOID TOO MUCH SPENDING AND RISK-TAKING BY LOCAL GOVERNMENTS IN THE FUTURE

China has taken on a new policy approach translated by some as ‘loose fiscal policy and tight monetary policy’.  Loose fiscal policy refers to the bevy of tax incentive and other fiscal measures to stimulate spending by government and private developers on affordable public housing and other public works.

Tight monetary policy means government will continue to reign in loan growth, especially to Local Government Funding Vehicles.  Total loans in the economy are expected to decline over the remainder of 2010 and in future years.  The commencement of a government bond market in coming months will create another policy tool for government planners.

FACTS ABOUT CHINA’S LOCAL GOVERNMENT FUNDING VEHICLES [LGFV]

Many rumors are swirling around about these vehicles, most of which are inaccurate. They argue for the potential of a meltdown in Chinese economic activity.  We disagree with most of these confused analyses.

On July 20, 2010, China’s CBRC (China Banking Regulatory Commission) published information about outstanding bank loans including the loans to the local government funding vehicles.  Total loans outstanding to these vehicles were about 1 trillion U.S. dollars on June 30, 2010.  The report states that 27 percent were fully viable, 50 percent need to be serviced by secondary sources (legal guarantors or secondary cash flows), and 23 percent could pose a risk of default if cash flows do not improve or new guarantors are not found.  Let us focus upon the 23 percent with potential problems, which is about $230 billion U.S. dollars.

Of these loans, we assume that about 2/3 will benefit from rising land prices or cash flows from completed projects already under construction.  We estimate that about $75 billion U.S. dollars in bad loans will need to be written off or re-capitalized.  Assuming all of the questionable loans go bad (a very unlikely occurrence in our view) write offs would total $230 billion.

On a national level, China has about $1.4 trillion in cash reserves available.  In addition, the formation of a bond market, stock sales and cash held by provincial and local governments can also be used to restructure the bad debts.  Bad debts are likely to be anywhere from $75 billion to $230 billion in the worst case scenario. While this is serious, such figures are not unmanageable given the size of their reserves.

INDIA’S GDP GROWTH IS APPROACHING A VERY IMPRESSIVE 10 PERCENT

India will continue to grow rapidly.  We expect India’s high inflation (and rising interest rates) which have frightened many investors, will moderate after September when a successful monsoon season finishes with good rainfall, moderating food prices.

GOLD PRICES

We believe that all of the serious economic and political problems that have argued for a strong gold price continue to support rising demand for gold over the long-term.  India, Russia, China, and Persian Gulf countries are all accumulating gold.  A few weak, fiscally unsound institutions have been selling some of their gold to raise cash.  Demand has far outstripped supply over the last eight years and we have repeatedly seen that using periods of price decline to add to long term positions in gold is wise.

Gold recently approached $1,140 an ounce, which many technical analysts believe is a good buy point.   We suggest that gold taking partial profits in holdings on rallies and taking a larger percentage of your profits at $1650 per ounce.

We have been buyers during every prolonged period of gold weakness for years, and we continue to be buyers of gold during the current bout of weakness. A word to the wise is sufficient.

U.S. MARKET VOLATILITY

Markets have been volatile and we believe that they will remain volatile until the U.S. Securities and Exchange Commission begins to rein in the activities of the high frequency trading community.  These fast traders create unstable markets, increase volatility, and are scaring individual investors away from the markets.  When their actions are moderated, market movements will be more driven by fundamentals, and the individual investor will return, making the U.S. stock and bond market much healthier.

SUMMARY

We believe that higher volatility warrants high cash balances as volatility leads to market dislocations and good buying opportunities.

In our opinion, gold is approaching attractive prices for additions to portfolios.  We also find some high-yielding oil related shares to be attractive on price declines.  Longer term, China, India, Malaysia, Thailand, Singapore, and Brazil continue to be attractive destinations for investment capital.

Thanks for listening.  We hope you are enjoying the summer season, and we encourage you to contact us if we can be of service.

Monty Guild and Tony Danaher
www.GuildInvestment.com

Dear CIGAs,

"Currency Induced Cost Push Inflation" cannot be avoided. It will happen overnight as confidence in currency breaks. All of this has happened before.

There was a major dollar rally in 1931 as many European countries defaulted on their debt. The dollar looked outrageously bullish as a mirror image of the weak European currencies. The media spoke of the USA in the manner of a refuge currency in 1931. Then it all changed as it has here and now.

The dollar returned to its previous bear market, plumbing new lows.

We are, here and now, continuing on QE to infinity. Here and now, the Fat Cat insiders of Wall Street know this and are NOW shifting to massive longs under cover of a paper gold game.

The Fat Cat Wall Street demons will make the most money over the shortest period of time in gold just as they did in 1979-80 and in the 1930s. It is totally obvious to the objective observer of the history of gold and currency.

It is here and now. It has all happened before in the same cyclical time frame as now. But here and now, so many are blind to reality.

So many have become gambleholics. So many have lost emotional balance. So many are being fooled daily by the manipulation of the paper gold market.

The trend of dollar value, here and now, is illustrated below. It is all happening again, here and now.

Harry Schultz knows it. I know this. Few have a clue of the spread of the cancerous economic entity known as "QE to Infinity" in the entire Western World.

History lesson: Huge quantities of cash were needed in Weimar Germany

Jim Sinclair’s Commentary

This is the 2nd state of (economic) Emergency in California.

California ‘fiscal emergency’ declared
29 July 2010 Last updated at 06:49 ET

California governor Arnold Schwarzenegger has declared a fiscal state of emergency, putting pressure on lawmakers to pass a state budget that is now more than a month overdue.

California’s economy, which is the eighth largest in the world, faces a budget deficit of $19bn (£12bn).

Mr Schwarzenegger said that without a budget in place the state’s government would run out of cash by October.

He also ordered most state employees to take three days unpaid leave a month.

Earlier this month, the governor ordered 200,000 state workers to be paid the minimum wage because no budget had been passed.

‘Fiscal meltdown’

The "furlough Friday", which will start in August, requires state workers to take three Fridays off a month until a new budget is enacted.

More…

Jim Sinclair’s Commentary

The US has much more threatening problems than the EU.

1.65 Million Properties Receive Foreclosure Filings in First Half of 2010
Bank Repos Hit Another Record High in Q2 While Defaults and Auctions Decrease; June Marks Third Straight Monthly Decrease in Overall Foreclosure Filings
By RealtyTrac Staff

IRVINE, Calif. – July 15, 2010 – RealtyTrac® (http://www.realtytrac.com/gateway_co.asp?accnt=137300), the leading online marketplace for foreclosure properties, today released its Midyear 2010 U.S. Foreclosure Market Report, which shows a total of 1,961,894 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 1,654,634 U.S. properties in the first six months of 2010, a 5 percent decrease in total properties from the previous six months but an 8 percent increase in total properties from the first six months of 2009. The report also shows that 1.28 percent of all U.S. housing units (one in 78) received at least one foreclosure filing in the first half of the year.

Foreclosure filings were reported on 313,841 U.S. properties in June, a decrease of nearly 3 percent from the previous month and a decrease of nearly 7 percent from June 2009. June was the sixteenth straight month where the total number of properties with foreclosure filings exceeded 300,000.

Foreclosure filings were reported on 895,521 U.S. properties during the second quarter, a decrease of nearly 4 percent from the previous quarter and an increase of less than 1 percent from the second quarter of 2009.Default and auction notices were down on a quarter-over-quarter and year-over-year basis in the second quarter, but bank repossessions (REOs) increased 5 percent from the previous quarter and 38 percent from Q2 2009 to 269,962 — a new quarterly high for the report.

“The second quarter was a tale of two trends,” said James J. Saccacio, chief executive officer of RealtyTrac. “The pace of properties entering foreclosure slowed as lenders pre-empted or delayed foreclosure proceedings on delinquent properties with more aggressive short sale and loan modification initiatives. Meanwhile the pace of properties completing the foreclosure process through bank repossession quickened as lenders cleared out a backlog of distressed inventory delayed by foreclosure prevention efforts in 2009.

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Jim Sinclair’s Commentary

And more and more as we head, without any doubt, into currency induced cost push inflation.

Bank of England chief says stimulus still needed
Bank of England governor says degree of continuing stimulus is key issue
Robert Barr, Associated Press Writer, On Wednesday July 28, 2010, 6:27 am EDT

LONDON (AP) — The governor of the Bank of England said Wednesday that the need to stimulate the economy still takes precedence over concerns about high inflation at a time when the outlook for the global economy remains uncertain.

Governor Mervyn King told Parliament’s Treasury Committee that Britain cannot be confident that a sustained recovery is under way despite last week’s report that the economy grew 1.1 percent in the second quarter — the third quarter of recovery from a deep recession.

"The debate is about the appropriate degree of stimulus, not about applying brakes," King said.

The Bank’s Monetary Policy Committee has kept its key interest rate at an all-time low of 0.5 percent, though one member — Andrew Sentance — is advocating a hike to 0.75 percent because of his concerns about inflation remaining above the official 2 percent target.

"We continue to face the challenge of rebalancing our economy away from consumption towards net exports, and raising our national savings rate. During the rebalancing, there is a risk that the level of money spending in the U.K. will remain weak, with the economy operating below capacity. That would push down on inflation potentially to a rate that is significantly below the 2 percent target," King said.

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Jim Sinclair’s Commentary

You heard it from the Brits today. Now hear it from the Fed.

Currency Induced Cost Push Inflation is on its way.

Fed Board Member’s Deflation Warning Hints at Policy Shift
By SEWELL CHAN
Published: July 29, 2010

WASHINGTON — A subtle but significant shift appears to be occurring within the Federal Reserve over the course of monetary policy, amid increasing signs that the economic recovery is weakening.

On Thursday, James Bullard, the president of the Federal Reserve Bank of St. Louis, warned that the Fed’s current policies were putting the American economy at risk of becoming “enmeshed in a Japanese-style deflationary outcome within the next several years.”

The warning by Mr. Bullard, who is a voting member of the Fed committee that determines interest rates, comes days after Ben S. Bernanke, the Fed chairman, said the central bank was prepared to do more to stimulate the economy if needed, though it had no immediate plans to do so.

Mr. Bullard had been viewed as a centrist, and associated with the camp that sees inflation, the Fed’s historic enemy, as a greater threat than deflation.

But with inflation now very low, about half of the Fed’s unofficial target of 2 percent, and with the European debt crisis having roiled the markets, even self-described inflation “hawks” like Mr. Bullard have gotten worried that growth has slowed so much that the economy is at risk of a dangerous cycle of falling prices and wages.

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Jim Sinclair’s Commentary

If Moody wishes to self destruct, downgrading US debt is the express lane method.

Moody’s: U.S. needs debt plan.
The U.S. government needs to lay out a credible plan to address its rising debt if it wants to maintain its triple-A credit rating, said Steve Hess, Moody’s top sovereign analyst for the U.S., East Asia and Australasia. At present, the U.S. appears to have "no plan" to deal with its fiscal outlook. The U.S. rating remains on a stable outlook at Moody’s.

Jim Sinclair’s Commentary

The fear "D" word is finding its way into the Halls of Ivy. You can anticipate QE to infinity which is the means of producing currency induced cost push inflation.

Beige Book shows economic fragility.
U.S. economic activity continued to be "weak" in June and into July, the Federal Reserve said in its Beige Book report, in the latest sign that the recovery may be running out of steam. Though most districts reported continued improvements in economic conditions, the improvements were modest; gains were limited for retail sales, housing and construction remained weak, and banking lending remained tight.

Jim Sinclair’s Commentary

For every seller there is a buyer. The buyer here is the Fat Cats that know what I and Harry know. The buyer on the dips has certainly made fools out of the other side for many years now.

This is the option expiration week at the Crimex. This is the second BEARISH article on gold today, the other being on F-TV. That is quite bullish.

All we need now is a BEARISH gold article in the London Financial Times and we are home free.

GLD gold holdings drop; COMEX volume hits record
Thu Jul 29, 2010 2:37pm EDT

NEW YORK July 29 (Reuters) – A sharp drop of bullion holdings in the world’s biggest gold-backed exchange traded fund combined with a loss of COMEX open interest indicated investors are moving out of the precious metal into other assets such as the equity markets.

Trading volume of U.S. COMEX gold futures also rose to an all-time high on Wednesday, driven by a combination of an option expiration and contract rollover. [ID:nWEN8059]

SPDR Gold Trust (GLD), often called GLD because of its ticker symbol, posted its biggest one-day tonnage drop since April 2008, as holdings fell 18.55 tonnes to 1,282.28 tonnes on Wednesday.

"That means fund managers are deleveraging out of gold and the bond markets and going into the stock markets," said COMEX gold floor trader Jonathan Jossen.

Bullion holdings held in GLD’s vault were down nearly 3 percent so far in July, but they were still up 13 percent year to date.

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Jim Sinclair’s Commentary

QE to infinity is and will continue to be the battle cry of the Western World. It never stopped. It only went underground in camouflage such as guarantees beyond the guarantor and extension of unemployment benefits three times.

Another example is the bearded demand for treasuries in auction and the same in EU auctions for Spain and Greece.

Fed’s Bullard: It Is Time To Start Talking About More Quantitative Easing To Stop Deflation
Gregory White | Jul. 29, 2010, 12:04 PM

The Federal Reserve President of St. Louis James Bullard has warned that current U.S. policy could lead to Japanese style deflation and that a new form of quantitative easing may be necessary, according to CNBC.

Bullard is recommending the purchase of government debt in an effort to stimulate the economy, and prevent a deflation style scenario, according to the AP.

Bullard blames the Fed’s extended low rate language partially for what could become a potentially Japanese style deflationary period, and that quantitative easing programs are the U.S.’ best weapon against this result.

Here’s the abstract:

In this paper I discuss the possibility that the U.S. economy may become enmeshed in a Japanese-style, deácautionary outcome within the next several years. To frame the discussion, I rely on an analysis that emphasizes two possible long-run outcomes (steady states) for the economy, one which is consistent with monetary policy as it has typically been implemented in the U.S. in recent years, and one which is consistent with the low nominal interest rate, deflationary regime observed in Japan during the same period. The data I consider seem to be quite consistent with the two steady state possibilities. I describe and critique seven stories that are told in monetary policy circles regarding this analysis. I emphasize two main conclusions: (1) The FOMC is extended period language may be increasing the probability of a Japanese-style outcome for the U.S., and (2) on balance, the U.S. quantitative easing program offers the best tool to avoid such an outcome.

Markets are currently selling off in response, with today’s earlier losses accelerating on the announcement.

More…

Dear CIGAs,

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini

The Dual Face of the Structural Trade Deficit
CIGA Eric

Eric,

A big ship I would hate to try to avoid on the high seas while she was doing 30 knots. There will be three of the zapping back and forth across the Pacific 5 days each way! Wow! let’s hear it for Walmart!

Jack

Both pictures define the reality of structural deficits in which issuance debt at the expense of tomorrow’s production, consumption, and investment.

Made in China:

Made in China also manifests itself in the Formula depicted below.

US Federal Budget (Surplus or Deficit As A % of GDP, 12 Month Moving Average) and Gold London P.M. Fixed:

More…

Though For The Day:

Wouldn’t you say it is interesting that $1156 is one of the Gold Angels?

My Dear Friends,

The following note preceding the excellent article written by Ambrose Evans-Pritchard is from the man who I consider the "Dean of Gold," Harry Schultz.

This is what the Goldmans of the world are in the process of positioning themselves for at your expense.

At the same time many in the gold community are in the bathtub with their razor blade kit. Please, no cutting yet.

Regards,
Jim

Dear CIGAs,

Hyperinflation will come overnight as Jim predicts. Forget gradual.

How do you protect assets and food? Hide stuff. Avoid medium profile. The following article describes how bad it got in German hyperinflation and how dangerous it was to even own a painting. Read it all, then plan appropriately.

Harry Schultz

The Death of Paper Money
As they prepare for holiday reading in Tuscany, City bankers are buying up rare copies of an obscure book on the mechanics of Weimar inflation published in 1974.
By Ambrose Evans-Pritchard
Published: 7:05PM BST 25 Jul 2010

Ebay is offering a well-thumbed volume of "Dying of Money: Lessons of the Great German and American Inflations" at a starting bid of $699 (shipping free.. thanks a lot).

The crucial passage comes in Chapter 17 entitled "Velocity". Each big inflation — whether the early 1920s in Germany, or the Korean and Vietnam wars in the US — starts with a passive expansion of the quantity money. This sits inert for a surprisingly long time. Asset prices may go up, but latent price inflation is disguised. The effect is much like lighter fuel on a camp fire before the match is struck.

People’s willingness to hold money can change suddenly for a "psychological and spontaneous reason" , causing a spike in the velocity of money. It can occur at lightning speed, over a few weeks. The shift invariably catches economists by surprise. They wait too long to drain the excess money.

"Velocity took an almost right-angle turn upward in the summer of 1922," said Mr O Parsson. Reichsbank officials were baffled. They could not fathom why the German people had started to behave differently almost two years after the bank had already boosted the money supply. He contends that public patience snapped abruptly once people lost trust and began to "smell a government rat".

Some might smile at the Bank of England "surprise" at the recent the jump in Brtiish inflation. Across the Atlantic, Fed critics say the rise in the US monetary base from $871bn to $2,024bn in just two years is an incendiary pyre that will ignite as soon as US money velocity returns to normal.

Morgan Stanley expects bond carnage as this catches up with the Fed, predicting that yields on US Treasuries will rocket to 5.5pc. This has not happened so far. 10-year yields have fallen below 3pc, and M2 velocity has remained at historic lows of 1.72.

As a signed-up member of the deflation camp, I think the Bank and the Fed are right to keep their nerve and delay the withdrawal of stimulus — though that case is easier to make in the US where core inflation has dropped to the lowest since the mid 1960s. But fact that O Parsson’s book is suddenly in demand in elite banking circles is itself a sign of the sort of behavioral change that can become self-fulfilling.

As it happens, another book from the 1970s entitled "When Money Dies: the Nightmare of The Weimar Hyper-Inflation" has just been reprinted. Written by former Tory MEP Adam Fergusson — endorsed by Warren Buffett as a must-read — it is a vivid account drawn from the diaries of those who lived through the turmoil in Germany, Austria, and Hungary as the empires were broken up.

Near civil war between town and country was a pervasive feature of this break-down in social order. Large mobs of half-starved and vindictive townsmen descended on villages to seize food from farmers accused of hoarding. The diary of one young woman described the scene at her cousin’s farm.

"In the cart I saw three slaughtered pigs. The cowshed was drenched in blood. One cow had been slaughtered where it stood and the meat torn from its bones. The monsters had slit the udder of the finest milch cow, so that she had to be put out of her misery immediately. In the granary, a rag soaked with petrol was still smouldering to show what these beasts had intended," she wrote.

Grand pianos became a currency or sorts as pauperized members of the civil service elites traded the symbols of their old status for a sack of potatoes and a side of bacon. There is a harrowing moment when each middle-class families first starts to undertand that its gilt-edged securities and War Loan will never recover. Irreversible ruin lies ahead. Elderly couples gassed themselves in their apartments.

Foreigners with dollars, pounds, Swiss francs, or Czech crowns lived in opulence. They were hated. "Times made us cynical. Everybody saw an enemy in everybody else," said Erna von Pustau, daughter of a Hamburg fish merchant.

Great numbers of people failed to see it coming. "My relations and friends were stupid. They didn’t understand what inflation meant. Our solicitors were no better. My mother’s bank manager gave her appalling advice," said one well-connected woman.

"You used to see the appearance of their flats gradually changing. One remembered where there used to be a picture or a carpet, or a secretaire. Eventually their rooms would be almost empty. Some of them begged — not in the streets — but by making casual visits. One knew too well what they had come for."

Corruption became rampant. People were stripped of their coat and shoes at knife-point on the street. The winners were those who — by luck or design — had borrowed heavily from banks to buy hard assets, or industrial conglomerates that had issued debentures. There was a great transfer of wealth from saver to debtor, though the Reichstag later passed a law linking old contracts to the gold price. Creditors clawed back something.

A conspiracy theory took root that the inflation was a Jewish plot to ruin Germany. The currency became known as "Judefetzen" (Jew- confetti), hinting at the chain of events that would lead to Kristallnacht a decade later.

While the Weimar tale is a timeless study of social disintegration, it cannot shed much light on events today. The final trigger for the 1923 collapse was the French occupation of the Ruhr, which ripped a great chunk out of German industry and set off mass resistance.

Lloyd George suspected that the French were trying to precipitate the disintegration of Germany by sponsoring a break-away Rhineland state (as indeed they were). For a brief moment rebels set up a separatist government in Dusseldorf. With poetic justice, the crisis recoiled against Paris and destroyed the franc.

More…

 

Jim Sinclair’s Commentary

The Fat Cats are big golfers.

If the FIDC would consider a 105% loss sharing arrangement, I am sure they would have a buyer.

Las Vegas golf course taken over by FDIC to go on auction block
Stallion Mountain Golf Club to be auctioned Aug. 16
By Buck Wargo
Tuesday, July 27, 2010 | 4:39 p.m.

A Las Vegas golf course taken over last summer by the Federal Deposit Insurance Corp. when it seized Community Bank of Nevada will be auctioned off to the highest bidder.

The Stallion Mountain Golf Club, located 6.9 miles east of the Strip on East Flamingo Road, was closed in July 2008 when a group of investors who bought it in 2006 from developer Billy Walters for $24.5 million gave it back to the bank when they could no longer afford their debt service payments.

The FDIC took over the bank in August 2009 and has maintained the course to prepare it for public auction.

The course, originally known as the former Sunrise Country Club, was built by former PGA player Jim Colbert and was the site where PGA Tour pro Chip Beck shot a record-tying 59 in the 1991 Las Vegas Invitational.

The auction is set for Aug. 16 and will be done through sealed bids, said Keith Cubba, a broker with the Land & Investment Group at Colliers International Las Vegas. Once the bids are received, it will be whittled down to a group of finalists who will be asked to make their final offer, he said.

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Jim Sinclair’s Commentary

The Age of Miracles is not over. Oil is biodegradable in the Gulf according to the media.

I swear I just heard the following on F-TV: "Government says a large amount of the Gulf spill oil is under the water and that is good because you cannot see it."

 

Jim Sinclair’s Commentary

Be prepared, as Eric says, to get the heartwarming news that whales are now adapted to eating the oil under the water that you fortuitously cannot see.

The whales are advised to eat fast because the oil is miraculously biodegradable. The whale bodies that have floated up on shore have all died of old age. The dead farmed oysters were planted dead.

Now think about the media reporting on economics.

Gulf of Mexico Oil Slick Appears to Vanish Quickly

The oil slick in the Gulf of Mexico appears to be dissolving far more rapidly than anyone expected, a piece of good news that raises tricky new questions about how fast the government should scale back its response to the Deepwater Horizon disaster.

The immense patches of surface oil that covered thousands of square miles of the gulf after the April 20 oil rig explosion are largely gone, though there continue to be sightings of tar balls and emulsified oil here and there.

Reporters flying over the area Sunday spotted only a few patches of sheen and an occasional streak of thicker oil, and radar images taken since then suggest that these few remaining patches are quickly breaking down in the warm surface waters of the gulf.

More…

 

Jim Sinclair’s Commentary

The key word today was used by the MOPErs. The Durable Goods Orders decline was UNEXPECTED.

That means it was an anomaly, a mistake and not a trend because the "Board of Economic Wizards" did not anticipate it in their deed deliberations.

 

Jim Sinclair’s Commentary

There is nothing dollar positive here.

- Restated Downturn Should Be More Severe
- Nonsense Home-Sales Reporting
- Roughly 144,000 Census Jobs Lost in July

"No. 312: Durable Goods, Home Sales, Upcoming GDP Revisions"
http://www.shadowstats.com/

Jim Sinclair’s Commentary

Greg Hunter is so right about the result of MOPEd details of the present time major banking crisis.

If FASB did not capitulate there would be few solvent US banks. This includes major money center banks. This means that the earning statement and balance sheets of the financial community are as much a cartoon as the value put on bankrupt and near bankrupt OTC derivative so-called assets.

Dear CIGAs,

Last week, bank failures quietly passed the 100 milestone for the year.  I say “quietly” because the bank failure story has gone largely unreported or, at least, under-reported by the mainstream media.  Just to give you an idea of how fast the bank insolvency problem is accelerating, last year, at this time, 64 banks had been taken over by the Federal Deposit Insurance Corporation.  So far, this year, 103 banks have already been taken over by the FDIC.  There is no question the bank failures the FDIC will have to deal with will be greater than the 140 insolvent banks closed last year.  At this point, we just don’t know how many more, but dozens more than last year for sure. 

One big bank negative I see is the loss of business in the Gulf because of the oil spill catastrophe.  I don’t think it is a stretch to say that the loss of revenue from fishing, deep-water oil drilling, tourism and spoiled coastal property will probably have a negative effect on the balance sheet of Gulf Coast banks.  Just 2 weeks ago, a Wall Street Journal story documented tail spinning Florida banks asking for a break from federal regulators.  It said, “Florida banks—already weakened by the real-estate bust and hit again by customers suffering from the BP PLC oil spill—are asking federal regulators for a reprieve from government-ordered capital raising as they struggle to stay alive.” (Click here for the more on the WSJ story.) There are currently 775 “problem” banks on the FDIC’s list, and I don’t think that list will be shrinking anytime soon.

In order for the FDIC to close the banks, it has to spend cash to make depositors whole.  It is also entering into what are called “loss share” agreements.  It is a way to keep problem loans and foreclosed property in a banking environment and not become the full responsibility of the government.  It also caps the loss for the buying institution.  Here’s how the “loss share” basically works.  The FDIC writes down the assets to an estimated value.  Then, the FDIC covers any potential losses in an 80/20 split, with the FDIC covering 80% of any potential loss.  These loss share agreements were used in the S&L crisis in the early 90’s.  Since this crisis began, there have been $173.5 billion of loss share agreements through May of 2010.  (The total now stands at more than $178 billion.)  According to FDIC spokesman David Barr, if loss share agreements were not used, the failed bank assets might sell for “pennies on the dollar.”  The idea is to wait and sell the assets in the future when they might be worth more.  Barr told me just last week, “As the FDIC turns those losses into real losses when we sell those, then the loss at the failed bank is adjusted accordingly, some go up and some go down.”

If the economy continues to tank, make no mistake, there will be some liability to the FDIC.  We just will not know how much until the assets are sold.  There might be no future liability at all, but I don’t think that’s likely given the serious and prolonged problems facing the economy.  This is probably a multi-billion dollar future write down, but who knows?

The bank closings are also taking a toll on the FDIC’s Deposit Insurance Fund, or DIF.  In May, it was reported to be $20.7 billion in the red.  Back then, I wrote a post called, “FDIC Insurance Fund Still $20 Billion in the Hole.”    I said, “I talked with FDIC spokesman David Barr yesterday about the shortfall in the DIF.  He said, “The FDIC is not broke.”  It has an additional “$63 billion in cash.”  He told me there is about $46 billion in three years of prepaid deposit insurance premiums and an additional $17 billion in cash for a grand total of $63 billion in “liquid resources” to close insolvent banks.” 

If you subtract the $20.7 billion deficit of the DIF from the roughly $63 billion in “liquid resources,” you end up with a little more than $42 billion.  FDIC Chairman Sheila Bair was quoted, around the same time, saying the FDIC expects to spend “$40 billion” closing banks in the next year.  (Remember, this was before anyone knew how big the Gulf oil spill calamity was going to be.)  My math says that would leave a little more than $2 billion in “liquid resources.”  According to an email from David Barr yesterday, after that $2 billion is used, there is a “. . . 100 billion line of credit (from the Treasury).  The FDIC also has some $35 billion in assets from failed banks that we must sell.”  

That means in about a year, the FDIC will be closing banks with borrowed money and what it can get from selling the assets of failed banks.  If that doesn’t paint a dire picture of bank insolvency in this country, I don’t know what does.  It is amazing to me how little time the mainstream media is spending on this unfolding financial disaster and how much time it is devoting to things like Mel Gibson’s rants.

More…

Dear CIGAs,

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini

Dear Friends,

As is the case with Jim, my email inbox runneth over these days. Time constraints prevent me from responding to all of them (some require no response anyway… “You are the hell spawn of Satan”).

Let me be brief therefore.

The only traders who consistently make big money ( I am not talking about the penny and nickel guys who scalp markets for a living) are the ones who understand the fundamentals of the market that they trade. The reason – they are the only ones who can relatively safely judge where “value” lies and can tell when markets are cheap or expensive. That being said – today’s markets have changed dramatically from those that I cut my teeth on more than 2 decades ago now. They have become almost totally dominated by technicians. Any trader looking to profit therefore must respect the technicals in a market. Ignore them at your own peril, i.e. unless you have extremely deep pockets and are in a position of being able to sit on substantial drawdowns in your trading account without losing the least bit of sleep. I know of very few guys that are in this latter category.

The guys who manage funds today have little to nothing in common with the guys who ran the funds when I got into this business. They were fewer then but their brokers stood in the pit and everyone knew who they were and when they were buying or selling. Even at that, they were very good at camouflaging what they were doing. Today they hide behind a computer and trade the screen. Very few of them have what I would consider a working knowledge of the fundamentals behind the markets they ply their craft in. They do not finesse trades but dump entire positions in huge blocks or enter markets in huge blocks. Gone are the days when the fund operators scaled in and scaled out in such a fashion that they were able to hide to a certain extent what they were up to. Today, they really do not care who knows what they are doing because they know that once the computer enters their orders, nearly all the rest of the computers of the fund world will do the same thing. The big “skill” set in trading today is who can get in or get out FIRST. Do it in large enough size, and you are guaranteed that the rest of the crowd will follow your lead without asking questions.

That brings me to the Commitment of Traders reports – please stop using this report to trade in and out of markets or attempt to pick market top or bottoms. It was never meant for that purpose alone. It can only safely be used in conjunction with other technical indicators because of the nature of today’s markets. When I first began using this data (many years ago), it was easier to gauge an overbought or overextended market because we did not have the huge sloshing ocean of liquidity crashing into and out of our markets back then. That has all changed. These markets of today can run far higher or drop much lower than many expect in spite of their regular prognostications on the COT reports. It may sound trite, but a market will stop moving lower when it is sold out and will stop moving higher when it is bought out. You cannot tell when this will occur based on merely looking at the COT numbers. If it were that easy, the planet would be full of traders running around looking to buy islands in the South Pacific.

I have written a fair number of comments on these COT reports over the last 7 years. Review some of those if you get a chance. But note also that I use these reports only as informative insights into the internals of a market; never as a trading signal to get long or get short. They can alert you to the POSSIBILITY of a market bottom or market top, but are only VERIFIED when a technical signal confirms it. There are too many egos out there which need stroking apparently who are constantly claiming that they can nail tops and bottoms based on these reports. That is just bunk.

Lastly, I want to reemphasize what I noted in my chart comments yesterday; markets need the sponsorship of the speculative community in order to trend. No market on the planet can sustain a viable rally without the active participation of speculators on the long side. As long as a market is hemorrhaging open interest as it declines, the speculators are deserting it for the time being. Jumping in on the long side merely because that open interest is decreasing is a sure fire way to lose your rear end. How do you know that the funds are through dumping their longs?

Neither Jim or I nor Monty have ever stated that a trader or investor should blindly buy or take a long position in gold futures merely because price is declining or open interest is decreasing. What we have said is that you make your buy ins at technically significant levels and then employ good money management techniques or that you eliminate margin of any kind so that you can hold the positions in solid stocks your convictions have told you to take without being forced to cough them up due to constraints in your trading or investing account. No one should ever be on a first name basis with the margin clerk or you are an accident waiting to happen. That is what it means to “buy weakness and sell strength in gold”.

Those who purchase the actual metal in bullion form can simply take the gift provided to them when prices get nailed and add to their holdings. After all, you have no margin clerk involved here but are diversifying your wealth and buying a form of insurance against what the politicians and monetary masters have done to our country and our currency. What does it matter in the long run if you pay $20/ounce higher for gold considering where it is going to eventually trade? After all, you can always buy more coins if prices move lower and get more bang for your buck.

Until the morons who run the funds and have all the funny money at their disposal wise up and start standing for delivery at the Comex, they will get their asses handed to them courtesy of the bullion banks. I cannot help it that these guys are too damn lazy to take the necessary steps to acquire the physical metal, warehouse and insure it. After all, some of these same funds have been known to hoard copper and warehouse the stuff in order to squeeze the shorts. Remember when some of these same players were renting up all the available oil tanker space to store crude oil offshore and keep it off the market back when crude was making its run towards $150. Why they refuse to do the same with gold is really difficult to grasp unless of course they are fearful of government regulators sniffing around their business. Maybe the word has gotten out that this will be the case with any hedge fund manager who dares to try to force the shorts to delivery the gold. One thing along this line – China or Russia nor mid-Eastern interests are under no such constraints and could break the back of the bullion banks tomorrow if they chose to do so. That they have not signifies that they are not through acquiring cheap gold yet. Those folks, along with India, will be the ones who put the floor in for gold and cause the technical indicators to bottom and then turn up. The funds will then buy high and buy even higher and chase prices up once again. It has happened over and over and over again for nearly 10 years now. It will continue to occur until at such time the gold price levels off at a permanent higher plateau and remains there.

My Dear Friends,

I have said to you many times that the entities that will make the most profit on the gold price will not be the gold community, but rather just those that the community identifies as the enemy, the gold banks.

What is happening now is the setup to that event.

Recently Armstrong questioned publicly if the Goldmans of the world were using his cyclical analysis. Judging from what we have seen the answer is yes by intention or coincidence.

Those wishing to offset their pain on me today have to be defined as the public. The only bulls today are the stone professionals who can see what is taking place in the published numbers.

The gold banks are engineering their short cover and will shift to the long side of gold. It is in fact happening right now as the public panics. The currency market and media will be called into service in order to take gold to and through $1650.

Respectfully,
Jim

Jim Sinclair’s Commentary

When you shrink wrap piles of money and air ship them to Afghanistan what the hell do you expect?

Big business is the result for all the connector airlines.

SIGIR: Defense can’t account for $8.7 billion
July 27, 2010 – 4:59am
Rachel Stevens

The Defense Department is unable to account for $8.7 billion of the $9.1 billion in Development Fund for Iraq monies in received for reconstruction in Iraq. This according to a study published today by the Special Inspector General for Iraq Reconstruction.

"This situation occurred because most DoD organizations receiving DFI (Development Fund for Iraq) funds did not establish the required Department of the Treasury accounts and no DoD organization was designated as the executive agent for managing the use of DFI funds," the report states.

The Special Inspector General for Iraq Reconstruction (SIGIR) finds that only one Defense organization actually set up the accounts required by the Treasury.

"The breakdown in controls left the funds vulnerable to inappropriate uses and undetected loss," SIGIR says.

The study recommends that the Secretary of Defense create new accounting and reporting procedures to avoid such mistakes in the future. It also recommends designating an executive agent to oversee progress, establishing measurable milestones, and determining whether any DoD organizations are still holding DFI funds.

More…

Jim,

I understand the logic in today’s article of how much overvalued a bank’s assets may be.

Though, I do get lost in the article when the writer says that the FDIC entered in an additional and other loss share arrangements for 1.5 billion.

Where did those assets come from? It doesn’t seem that they were part of the stated assets of the failed banks.

I would appreciate you helping me gain better insight to this issue.

CIGA Don

Dear Don,

The assets are failed bank assets, primarily OTC derivatives.

The guarantee is made by the FDIC who does not have that money to make such a guarantee.

Those that are guaranteed are the Fat Cats buying all these failed banks now with no or infinitesimal risk.

Regards,
Jim

 

While the gold market will be “pressed” as long as possible, it will change direction when time is up
CIGA Eric

Housing prices are rising according to economic reports this morning. The source of this economic miracle was not identified, but has to be primarily in the minds of those so reporting. The Euro traded over $1.30 before running into selling. Consensus see this as solved problems in the EU, not a hint of greater problems in the US. FASB capitulation and creative accounting impacting banks earnings are the subject of Eric’s contribution below. Calls I am getting this morning are total capitulation calls. Emails are worse. Gold will trade at $1650 and beyond.

Those that buy strength and sell weakness will lose in gold.

The three steps of paper operations

(1) Setup sentiment with bearish stories on F-TV before and during the operation.
(2) Since the shorts are few in number, well-organized and coordinated, it’s easy to press the market through short-term technical triggers.
(3) Once the technical trigger is generated, the numerous and high uncoordinated computers do all the work.

As I wrote on Sunday, "while the gold market will be “pressed” as long as possible, it will change direction when time is up." Those controlling the operation understand the limitation of time. Retail money does not, so watch them closely (see chart below). They will be setup on the wrong side at the wrong time for the benefit of connected money. Who are they? They are the ones with the smirk on their face during the decline.

Gold London P.M Fixed and the Nonreportable Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:

This game will be repeated again and again in the future because the sheeple are determined to remain asleep until moments before the slaughter.

More…

Dear CIGAs,

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini

Dear Friends,

Housing prices are rising according to economic reports this morning. The source of this economic miracle was not identified, but has to be primarily in the minds of those so reporting it.

The Euro traded over $1.30 before running into selling. The consensus this morning sees this as solved problems in the EU, not a hint of greater problems in the US.

FASB capitulation and creative accounting impacting bank earnings are the subject of Eric’s contribution below.

Calls I am getting this morning are total capitulation calls. Emails are worse.

Gold will trade at $1650 and beyond.

The timing remains the same. Gold will trade at $1650 on or before January 14th 2011. Martin Armstrong is eyeing a higher number, but later in June of 2011.

Respectfully,
Jim

CIT Q2 profit beats Street view
CIGA Eric

Business must be great! That is, the business of creative, fictional accounting.

CIT Group (NYSE:CIT – News), the commercial lender that last year emerged from bankruptcy, on Tuesday reported a quarterly profit that dwarfed analysts’ estimates.

CIT said gains from asset sales and recoveries from written-off loans boosted its second-quarter profit, offsetting costs it reported related to an employee retention program and higher credit costs.

Source: finance.yahoo.com

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Jim Sinclair’s Commentary

You have to love the revisions!

New home sales up, but sales remains slow
CIGA Eric

The Commerce Department says new home sales rose nearly 24 percent in June from a month earlier to a seasonally adjusted annual sales pace of 330,000. May’s number was revised downward to 267,000, the slowest pace on records dating back to 1963. Sales for April and March were also revised downward.

The sales revisions illustrate not only a broken but also deteriorating trend.
New Home Sales And Change YOY, SA:

Falling real (gold adjusted) home prices will do little to support future new home sales without further stimulus programs.

Median Home Price to Gold Ratio (MHPGOLDR) And YOY Change:

Source: finance.yahoo.com

More…

Chicago Fed National Activity Index
CIGA Eric

Index shows economic activity declined in June

Led by deterioration in production- and employment-related indicators, the
Chicago Fed National Activity Index declined to –0.63 in June, down from +0.31
in May. Three of the four broad categories of indicators that make up the index
made negative contributions in June, while the sales, orders, and inventories
category made the lone positive contribution.

Chicago Fed National Activity Index (CFNAI) is a lesser known economic series that suggest economic weakness in June. Trend inflections and divergences in the CFNAI often foreshadow trend changes in U.S. stocks. While the CFNAI trend line has yet to break, any weakness from June will met with further liquidity blasts from the Fed and public sector wishing to maintain the trend in stocks.

Chicago Fed National Activity Index (CNFAI) and S&P 500 Average:

Source: chicagofed.org

More…

Jim Sinclair’s Commentary

This financial world is loaded with time bombs. One major device is surfacing over the balance of the year.

The financial problems of the euro are always expressed as total debt outstanding. This is nothing compared to the financial problems of the MOPEd US that are always presented as the potential State Budget Deficit for fiscal year 2010.

The Death of Paper Money
As they prepare for holiday reading in Tuscany, City bankers are buying up rare copies of an obscure book on the mechanics of Weimar inflation published in 1974.
By Ambrose Evans-Pritchard
Published: 7:05PM BST 25 Jul 2010

Ebay is offering a well-thumbed volume of "Dying of Money: Lessons of the Great German and American Inflations" at a starting bid of $699 (shipping free.. thanks a lot).

The crucial passage comes in Chapter 17 entitled "Velocity". Each big inflation — whether the early 1920s in Germany, or the Korean and Vietnam wars in the US — starts with a passive expansion of the quantity money. This sits inert for a surprisingly long time. Asset prices may go up, but latent price inflation is disguised. The effect is much like lighter fuel on a camp fire before the match is struck.

People’s willingness to hold money can change suddenly for a "psychological and spontaneous reason" , causing a spike in the velocity of money. It can occur at lightning speed, over a few weeks. The shift invariably catches economists by surprise. They wait too long to drain the excess money.

"Velocity took an almost right-angle turn upward in the summer of 1922," said Mr O Parsson. Reichsbank officials were baffled. They could not fathom why the German people had started to behave differently almost two years after the bank had already boosted the money supply. He contends that public patience snapped abruptly once people lost trust and began to "smell a government rat".

Some might smile at the Bank of England "surprise" at the recent the jump in Brtiish inflation. Across the Atlantic, Fed critics say the rise in the US monetary base from $871bn to $2,024bn in just two years is an incendiary pyre that will ignite as soon as US money velocity returns to normal.

More…

 

Jim Sinclair’s Commentary

Here is the MOPE as the "Fat Cats" get ready to see the dollar back at .7200

Europe’s prospects brighten as U.S. fades
By Emily Kaiser
WASHINGTON | Sun Jul 25, 2010 3:01pm EDT

(Reuters) – What’s odd about this scenario?

German business confidence is soaring while U.S. consumer sentiment sinks.

Britain’s second-quarter economic growth was almost twice as fast as expected, the strongest in four years.

Meanwhile, economists have steadily marked down forecasts for Friday’s U.S. gross domestic product report.

What happened to Europe being the weak link in the global economic recovery?

Whatever the explanation and despite the divergence, there are signs that both regions will cool down in the second half of the year.

The U.S. "economy entered the second quarter with plenty of momentum but exited with very little," said IHS Global Insight economist Brian Bethune.

Economists polled by Reuters think U.S. growth slowed to a 2.5 percent annual rate in the second quarter, down from 2.7 percent in the first quarter and 5.6 percent in the final quarter of last year.

More…

Jim Sinclair’s Commentary

What derivatives do not do to international investment banks litigation will.

Here is a 2 for 1.

FCIC threatens Goldman audit.
The Financial Crisis Inquiry Commission is threatening to bring in outside accountants to comb through Goldman Sachs’ (GS) systems for data on derivatives. "We have a deep level of questioning about whether we’re getting the straight scoop here and whether Goldman is working with us on information that they surely have," said Phil Angelides, the FCIC’s chairman; Goldman has said its accounting systems didn’t break out trading revenue generated strictly from derivatives, and therefore it can’t provide the requested information to the commission.

Dear CIGAs,

Behind the cloak of all methods of MOPE a massive failure of US banks is being revealed very slowly. Wake up and read this please.

Dear CIGAs,

Friday evening, July 23, 2010, the FDIC announced seven more bank failures, bringing the totals to 103 so far this year and 270 since 2007. The seven banks closed this week had collective assets of $2.16 billion and deposits of $2.02 billion.

Their closings cost the FDIC an estimated $431 million, about 21% of deposits. So far this year, bank closings have cost the FDIC an estimated $18.55 billion.

Five of the seven closings were accomplished with the FDIC entering into loss-share agreements with the acquiring banks. That means, in effect, that the FDIC makes a guarantee to the acquiring bank that assets it has taken over from the failed bank will not decrease in value beyond a pre-agreed limit.

In connection with those five closings this week, the FDIC entered into loss share agreements covering an additional $1.25 billion in assets. So far in this crisis, the FDIC has entered into loss share agreements covering about $180 billion.

How Loss Share Agreements Figure Into Bank Failures:

Loss share agreements save the FDIC money at the time of the closing, because the FDIC does not have to pay the acquiring bank as much money up front to honor the failed bank’s deposits. However, a loss share agreement is by nature a bet.

The FDIC is betting that over the next ten years, the failed bank’s assets will turn out to be worth more than any party was willing to bid for the assets at the time each bank was closed. Future asset values are calculated net of selling expenses, meaning that things like foreclosure costs, property taxes, utilities and maintenance fees paid by the acquiring bank in disposing of the assets is deducted from their eventual sales price.

This is why it is important to keep track of the total value of assets the FDIC has guaranteed under loss share agreements throughout this financial crisis. It is similar to keeping track of the total dollar value of mortgages guaranteed by Fannie Mae or Freddie Mac. The two major distinctions are that the FDIC’s assets under loss share are, by definition, distressed assets and their value has already been significantly discounted.

The FDIC’s future exposure lies in the possibility that these assets may turn out to be worth even less than the discounted value agreed to at the time of each bank failure. This is a distinct possibility; otherwise the acquiring bank would not insist on the loss share agreement. In the event the assets turn out to be worth less than the amount agreed to by the parties up front, the FDIC’s losses could grow dramatically beyond its original projections.

Remember, the assets in question are illiquid and difficult to value, and their future value depends in large part on how this financial crisis plays out. You can bet the FDIC’s loss projections assume the current downturn is over and we will be experiencing income growth, less foreclosure activity and recoveries in the residential and commercial real estate markets going forward.

The parties that have acquired these assets under loss share agreements can afford to be indifferent as to what happens going forward. They are protected either way.

This is yet another avenue of quantitative easing. The US Treasury, by way of the FDIC, is guaranteeing a value for the Country’s most distressed bank assets much higher than anyone is actually willing to pay for them. In the process, it is helping disguise how “worth-less or worth-little” (Jim’s words) these assets have become.

More Evidence of FASB-Blessed Overvaluations:

Each bank failure announcement allows us a peek into how extensively bank management have been exaggerating the value of their least liquid assets since the FASB’s roll-back last year of fair value accounting requirements. Four of the worst examples of asset overvaluation exposed by this week’s closings were as follows:

SouthwestUSA Bank, Las Vegas, Nevada, had stated assets of $214 million and deposits of $186.7 million. The FDIC estimated its closing cost $74.1 million (40% of deposits). Based on that estimate, the bank’s assets were really only worth $112.6 million, and had been overvalued by 90%.

SouthwestUSA Bank’s situation was so bad, the acquiring bank was only willing to take over $137.3 million (stated value) of its assets, with its losses on $111.3 million of those assets limited by a loss share agreement with the FDIC. The FDIC had to take the remaining $76.7 million (stated value) of assets onto its own books for later disposition. Under these circumstances, the FDIC’s loss estimate could only be called a “guesstimate,” because its eventual losses are made uncertain both by the loss share agreement and the difficulty gauging how much it will be able to realize on the sale of the assets it was forced to take over.

Crescent Bank and Trust Company, Jasper, Georgia, had stated assets of $1.01 billion and deposits of $965.7 million. The FDIC estimated its closing cost $242.4 million. Based on that estimate, the bank’s assets were really only worth $723.3 million, and had been overvalued by 40%.

Thunder Bank of Sylvan Grove, Kansas, had stated assets of $32.6 million and deposits of $28.5 million. The FDIC estimated its closing cost $4.5 million. Based on that estimate, the bank’s assets were really only worth $24 million, and had been overvalued by 36%.

Community Security Bank of New Prague, Minnesota, had stated assets of $108 million and deposits of $99.7 million. The FDIC estimated its closing cost $18.6 million. Based on that estimate, the bank’s assets were really only worth $81.1 million, and had been overvalued by 33%.

Respectfully yours,
CIGA Richard B.

 

Follow the Money Within The Gold Market
CIGA Eric

America’s total debt is expected to exceed $14 trillion next year. Each American’s share of that debt totals just short of $50,000. If Fedzilla was honest and put all the figures on the table, we are in debt over $100 trillion due to the unfunded financial obligations for Social Security, Medicare and Medicaid.

As Jim suggests, an excellent economic observation from Ted (The Sledge) Nuggent. Actually, if all the "debt cards" were laid on the table the real burden would be far greater than anyone would be willing to recognize at least from a public perspective.

Unfortunately, any sentence that starts enormous debt burden of the US and western world and ends with buy gold is still a first class ticket to the lunatic fringe. Nobody wants to be associated with the lunatic fringe. Thus, it’s deer in headlights for most investors during the dips.

Connected money is still covering their short positions into weakness. This is not subjective opinion but rather fact. This is reflected by WA reading above 80%. In other words, the change in composition of contracts is significant (not to be ignored). While the gold market will be “pressed” as long as possible, it will change direction when time is up.

One simple rule: FOLLOW THE MONEY!

Gold London P.M Fixed and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:

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Dear CIGAs,

Where the FDIC has vended banks to the good ole boys with stated value guarantees on the junk paper, the bank is whole, not broke, if you think about it.

The junk paper that killed the bank is as good as a US treasury bill as it has a government agency guarantee without any doubt.

There is always cash and the junk paper now is excellent collateral. What gifts are being wrapped, tied with green ribbons, and given to the insiders?

If karma exists these horrid beings are in for a terrible future.

 

Jim Sinclair’s Commentary

We are now up to seven so far this weekend.

Bank Closing Information – July 23, 2010
These links contain useful information for the customers and vendors of these closed banks.

Home Valley Bank, Grants Pass, OR
SouthwestUSA Bank, Las Vegas, NV
Community Security Bank, New Prague, MN
Thunder Bank, Sylvan Grove, KS
Williamsburg First National Bank, Kingstree, SC
Crescent Bank and Trust Company, Jasper, GA
Sterling Bank, Lantana, FL

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