The Financial Climate of America with Jim Sinclair

Commentary by Yra Harris

Yra Harris shares his genius with us. I consider his summation all you
need to know to be right up to the minute of what is real out there.
All else is prattle, blather, and simple nonsense.

It is all here.

Dear CIGAS,

Not only can Geithner speak Mandarin and Japanese, but he can also
evidently moonwalk as well as Michael Jackson.

It seemed on Thursday that Geithner was trumpeting the insertion of
the phrase “market oriented exchange rates that reflect underlying
economic fundamentals.”

Unfortunately for the Treasury Secretary, the Chinese had not let this
desired phrase to be signed onto. Hu Jintao the Chinese president
would not allow it to be entered into the final memorandum.

This was yet another slap at Geithner which will force him to do more
back stepping than the late Michael Jackson. Not only did the US fail
to get a discussion about currency floatation, but the USA was widely
criticized for inflating asset bubbles with their low interest rate
policies. The US was then hammered on the lack of a free trade policy.
Even Mexico jumped on the US for its incipient protectionism.

This was not a successful meeting for the US and we can only hope that
Obama comes off better on his trips to China and South Korea.

President Obama’s speech in Japan was met with general acceptance and
deemed to be constructive for US – Japanese relations.

The Korea/US free trade agreement still hangs in the balance as
Congressional Democrats prevent its passage. This is causing more
embarrassment for the President on his Asian tour.

Geithner and company have to do less posturing and more negotiating if
the US is to be seen as a leader on global economic issues.

Up to this moment this presidential trip has not gone well, and we
believe it will bode ill for the dollar.

Until the Fed starts removing the stimulus, the US will continually be
viewed as a serial bubble blower.

There was a story on Bloomberg today suggesting that the Treasury was
going to push for TARP to be extended, so we have even more evidence
of the administration’s dedication to continual use of the liquidity
pump.

There is simply no desire to reign in liquidity and when Obama arrives
home he has promised a full-blown White House conference on job
creation.

We see continued dollar weakness and further curve steepening.

More importantly is that U.S. leadership is seen as deteriorating as
they fail to take the lead on free trade.

The equity markets will like the continued effects of the global carry
trade still maintaining its robustness.

We commented in Friday’s piece about some of the reversal action we
saw on Thursday and noted how the gold and Aussie dollar reversed off
highs and wanted to see if the reversal action was sustained. Friday
we received our answer and it was unequivocally a one day event as the
Aussie especially rallied on Friday, going out on its high. Gold also
turned and rallied most of the day, also going out on its high.

We cannot stress enough that economic models are inherently flawed as
a trading indicator because they fail to take into account the market
ramifications of political missteps. That is why we continue to
iterate that 2+2=5 is also a beautiful thing and why we give greater
credence to the analysis directed by political economy.

The impact of the global recession is met by domestic policies and as
long as this holds true all the G20 meetings and APEC take a back seat
to the needs of the political nation-state.

Congress will do what it needs to do to ensure its re-election. China
will do what it needs to do to make work for the millions displaced
from its rural economy. This thought process will continue to drive
our trading views, of course relying on the technicals to spot
breakouts both up and down as the soundest technique of risk
management.

We also look to what we have referred to as negative divergence, which
is when markets react contrary to the fundamentals of the market.

We saw this by the close of Friday when the long end of the debt
markets rallied even with the dollar weak and the carry trade back in
full force.

This catches our attention, as we know the underlying fundamentals of
the DEBT markets are terrible as the continuing abundant supply weighs
heavily.

We will be attentive to checking resistance levels to see where the
strength ought to ebb but with retail sales and the empire state
report out today we hope to get a good test of resistance.

We know that the long end of the DEBT market is viewing deflation as a
greater threat but at some point that will have to turn against itself
as the Fed and Treasury begin to panic.

That is what gold and the dollar has been anticipating.

We look for the debt market to eventually paint a similar story,
especially when its major creditors have so derisively received the
U.S.

The Great Shrinking American Dollar

Peter Boone is chairman of the charity Effective Intervention, a
research associate at the London School of Economics’ Center for
Economic Performance, and a principal in Salute Capital Management
Ltd. Simon Johnson, a senior fellow at the Peterson Institute for
International Economic, is the former chief economist at the
International Monetary Fund.

The American dollar is in the midst of a large fall in its value, or
depreciation, as measured against other major currencies. The decline
has been steady since 2002 and our currency is down about 35 percent
from that peak. After strengthening slightly more than 10 percent
during the global financial crisis of the past 18 months, the dollar
is again falling back toward its pre-crisis lows, representing its
weakest international value since 1967.

But there is a definite possibility that the dollar could soon decline
further or faster.

At the level of general economic strategy, the American government has
responded to a financial sector crisis with an expansionary fiscal
policy, and the Federal Reserve is implementing loose monetary policy.
Andrew Haldane, responsible for financial stability at the Bank of
England, puts it this way:

For the authorities, [excessive risk-taking by the financial sector]
poses a dilemma. Ex-ante, they may well say “never again.” But the
ex-post costs of crisis mean such a statement lacks credibility.
Knowing this, the rational response by market participants is to
double their bets. This adds to the cost of future crises. And the
larger these costs, the lower the credibility of “never again”
announcements. This is a doom loop.

In addition to a financial crisis, we also have a large
current-account deficit, meaning that we buy more from the world than
we sell. The deficit was $100 billion in the latest available (second
quarter) data, which is around 3 percentof gross domestic product, and
we finance that with capital inflows from abroad. (The current-account
deficit is down from around 6 percent, but two-thirds of the decline
is due to the lower price of oil).

Tarp to reduce the Budget Deficit

TARP to reduce the Budget Deficit is quantitative easing to infinity
because they are not buying their own bonds. They are creating money
to credit the budget deficits.

There has never been a more inflationary scenario in the history of
currency. Trader Dan expresses his opinion on the subject at hand.

Guys,

Take a look at the following story…

I am past the point where I read in disbelief anything that this
administration is capable of but this is so stupendously asinine that
I could not resist sending it out.

If you sweep aside all the BS contained in the article, the crux of
the matter is that these hucksters are so out of control and
infatuated with their spending, that they now think it is fiscally
responsible to print money into existence, saddling this plunge the
nation further into debt to create the TARP program and then use the
TARP money to reduce the debt and somehow can congratulate themselves
for being fiscally responsible???

Once upon a time the rallying call of these drunken spenders was
“raise taxes on the rich” to fund their redistributionist schemes. Now
it is “raise taxes upon those who are not yet born” by destroying the
currency.

With this sort of idiocy now being considered as responsible policy,
gold’s target price is moving higher and higher.

White House Considers Using TARP Funds to Cut Deficit
by WSJ

India and Sri Lanka Buy Gold

U.S. money supply is rising rapidly and this is another indicator of
coming inflation and higher commodity prices in years ahead.  When
combined with a lower dollar, this type of indicator has quite
frequently led to inflation.  It is for this reason among others that
we call for a resurgence of inflation in 2011.

Many had feared that the IMF’s pre announced sales of 400 tons of gold
would hit the market and cause the gold price to plummet.  We have
long held that this decade, as in past decades, IMF gold sales are
always taken by central banks that want to diversify out of currencies
and into gold for part of their reserves.

Currently, the central banks of many emerging countries hold only
about 3.5 percent of their assets in gold while developed countries
have about 35 percent of their reserves in gold.  It is no secret that
many emerging countries want to buy the IMF gold in order to raise
their status in the community of nations and diversify their holdings
out of the declining dollar.

India bought half the gold one month after it went on the market (a
record quick sale) and Sri Lanka bought gold for their reserves in the
open market.  Both purchases were at prices above $1,000 per ounce.
The purchase raises India’s gold holdings to 6 percent of their
reserves from 4 percent. China’s gold percentage to total reserves is
lower than India’s.  It seems obvious to us that many other nations
will buy up any gold offered by the IMF or other central banks at
market prices.  If they do, we expect the price of gold to rise much
higher to accommodate a rise to 10 percent in India and China’s gold
reserves.  China mines a great deal of gold internally.  If they
decide to hold their domestic production to add to their reserves as
Chinese financial figures have suggested they do, we could see gold
move to much higher prices

The G-20 Met last weekend and made if very clear no monetary tightening would occur at this time.

In effect, the G-20 said all systems are go for economic expansion
globally.  The G-20 said in their news release, “Economic and
financial conditions have improved following our coordinated response
to the crisis.  However, the recovery is uneven and remains dependent
on policy support. We agree to maintain support for the recovery until
it is assured”

May we translate?  All systems are go for global economic expansion.
When this news became public the U.S. dollar fell and gold rose
substantially.

India Buys gold while Great Britain buys banks. Now that is consistency in stupidity!

India, like China, understands the virtues of gold. This is why they
have snapped up 200 tons of gold from the IMF at around $1,045 per
ounce or $6.7 billion. The UK does not understand gold, that is why
Gordon Brown sold  most of the nation’s gold in 1999 at virtually the
low of $250.

Instead the UK has today spent $51 billion on propping up bankrupt
banks. Royal Bank of Scotland received another $41 billion today
making it the costliest bailout worldwide with a total of $75 billion.
Lloyds Bank received another $10 billion. The US is of course also
spending printed money on rescuing bank creditors with 115 bank
failures so far in 2009.

So who is likely to make the best return on their investment, India
with their gold or the UK or US with their bankrupt banks. We
certainly know who we will put our money on.

On 22 October we forecast in our report “Final Warning” that starting
in November we are likely to see major changes in markets and in the
economy. We have barely entered November and gold is already making a
new all time high at $1,081. It is interesting that it is happening
right after IMF has disposed of  half of the planned gold sales. The
same event in the 1970’s was the catalyst for the acceleration of the
gold price.

But this is just the beginning as we have been discussing in our
reports. We would suggest that investors don’t follow the example of
the UK and US and throw good money after bad but instead do like India
and protect themselves by buying gold.

It Will Be Difficult for the Housing Market to Return to Normal

The government, for all practical purposes, now controls the entire
housing mortgage market.

A senior economist at the San Francisco Federal Reserve Bank, John
Krainer, said in a report that that government sponsored enterprise
intermediation of mortgage lending will make it difficult for the
housing market to "return to normal."

Krainer said that GSEs such as Fannie Mae, Freddie Mac and Ginnie Mae
now guarantee over 80% of originations, while non-agency mortgage
securitization and loans have pretty much dried up.

Krainer wrote that the banking institution share of mortgage assets
declined from 75 percent in the 1970s to 35 percent in 2008 due to the
expansion of GSEs.

He added that the expansion of the GSEs has had a great impact on the
type of borrowers receiving loans. Pointing to data in late 2006, at
the end of the housing boom, Krainer said that about 20 percent of all
mortgage originations were made up of subprime loans, and that by
2008, the subprime share was "effectively zero." This then yo-yo’d.
The bankers moved out of this market, but the GSE’s stepped in

What More is There to Say?

Dear CIGAs,

We can keep you updated on developments and Trader Dan can keep you
updated on technical matters as the drama in gold will never end.

The dollar is headed for much bigger trouble quite soon.

Gold is going to $1224, $1650 and then on to Alf’s numbers.

The US dollar will touch its past low, fight a bit, but then give it
up to the carry trade and fundamental economics.

All we have warned you of is happening now.

The countdown of days needs to be understood as a countdown for just
what is happening. That countdown is to the faltering of a major area
of dollar support becoming invalid as the carry trade monster devours
any currency it adopts.

Interest rates cannot be raised to favor the dollar without throwing
the MOPE recovery directly into the circular file.

Confidence in the dollar is waning with every passing day. As
Armstrong has told you, one day soon confidence will simply implode.

This is a product of a lifetime of mistakes of which no one person can
be considered the author. It is the sum of wrong economics, rewarding
activities that produce nothing but paper shuffling, and punishing
activities that produce goods, human services and employment.

Within one week of the countdown the dollar will take out areas
expected to be the bottom of this decline by many talking heads today.
That is a dynamic event as was what Trader Dan spoke of here on
JSMineset last evening.

What has occurred are the things that economic history is made of> Few
outside of Trader Dan and the most attentive CIGAs were really shaken
by the occurrence.

This is what the countdown is all about. Look out the window and see
it happening. It is history in the making but no more than what
happened yesterday at lower levels.

The end is NOT coming. It has already happened. Are you insulated from
the results thereof?

Sincerely,
Jim

From Ken Klein

This evening in Asian trade, the Japanese Minister of Finance once
again restated the new view out of Japan that the level of the Yen is
no longer an obsession with the monetary authorities of that nation.
His comments were interpreted by the Forex markets that intervention
to stem the advance of the Yen is most unlikely. With that, market
participants wasted little time bidding the Yen into a strong advance.

Those statements of his, combined with that of Federal Reserve Vice
Chairman, Donald Kohn, that the US economy would not experience a
quick or sharp recovery out of its recession, were both read by
traders that US interest rates were not going anywhere anytime soon.
Carry traders then beat the Dollar down below critical support near
the 76 level on the USDX as they rushed into higher yielding
currencies such as the Aussie and Loonie. The Euro also shot up to
another new yearly high.

It is looking more and more like the current Administration has set on
a course of deliberate destruction of the US Dollar and with it, the
economic might that the US has enjoyed since post World War II. As
said many times on the pages of this web site, the profligacy of the
US has inescapable consequences and we are now seeing a rapid
acceleration of the same. The fall in the Dollar is picking up
momentum and that is why we are witnessing gold moving into new highs.

But gold is more than a Dollar phenomenon – Gold priced in terms of
British Pounds and in Euros is relentlessly moving higher as both
Great Britain and Europe, the fading West, are debasing their
currencies as well.

Protect yourself from the theft of your wealth by these conscienceless
politicians and monetary officials for they have sold their citizenry
down the river and plundered them in the process far more thoroughly
than Attila and his army of Huns ever did to Rome of old. At least the
Roman inhabitants were aware of the rape and pillaging of their
substance – when the general public finally awakens to the despicable
looting of their treasures by these reeking buzzards, they will rush
into gold with a fury that will shock even many of the readers of this
site.

This report comes from a man responding to a posting by Jim Sinclair
concerning the reliability of limber as a/the primary indicator of
economic health.  The reason of course is it's relationship to home
building starts.  Below is what he had to say about it from the
perspective and advantage of being on the front lines as a vendor

ken.

A Report to Trader Dan From the Trenches

Dear Mr. Norcini,

Let me start by sincerely thanking you for your work at JSMineset, it
is an integral part of the site and your commentary and charts are
impressive.

I often provide "trench" updates to Mr. Sinclair as I run my family
business which is an industrial hardware store.  To expand on that
somewhat we are what you would consider a mini home-center with about
7,500 square feet of dedicated hardware and paint space and an
accompanying 6,000 square foot yard containing lumber, sheet rock and
other building materials.

We purchase from two national suppliers, True Value and Orgill (the
largest independent distributor of hardware in the country) as well as
a number of local and regional suppliers as well as Benjamin Moore for
paint.  Without taking up to much of your time I can simply say that
business is weak on just about every front except for paint.  A number
of competitors have filed for bankruptcy and close sources tell me
others are nearing that point.  This industry apparently has quite a
reliance on CIT for financing, particularly for accounts receivable.
In support of your thesis noted on JSMineset this evening I can
provide a great deal of support for your assumptions.  Our purchases
for LBM (our acronym for lumber and building materials) are down close
to 50%.  A number of suppliers have told me that this category is
suffering more than any other and lumber yards are failing
disproportionately to traditional hardware stores.  I attempt to gain
a broad perspective of both regional and national trends from contacts
that I know are credible and knowledgeable at our vendors and there is
absolutely no letup in the downward trend in this category.  Our local
lumber supplier has had a number of sales this season with board
selling well below quoted exchange prices.  To my knowledge there is
substantial supply and continued waning demand.

More recently we have seen a deceleration in the business of the
larger companies that purchase from us.  Although we are generally a
second tier supplier some of our accounts are large companies that
build bridges, museums, schools, etc.  Most have multiple work sites,
foreman and generally shop for storage yards.  A number of large
projects are winding down and these companies are having difficulty
obtaining new business as the number of projects open for bid has
declined substantially.  I know of three large companies from a
regional perspective who have either laid off employees or are
planning to and that is just information I have obtained in the past 2
weeks.  In addition one source informed me that a 4-location lumber
and building material company with annual revenues near $100 million
may not survive.

In sum I concur with your analysis and just felt that the "trench"
info might help in seeing just how spot on your analysis is!

Best Regards,
CIGA Marc

Systemic Failure Approaches

Jim Willie CB                       

Use the above link to subscribe to the paid research reports, which
include coverage of several smallcap companies positioned to rise
during the ongoing panicky attempt to sustain an unsustainable system
burdened by numerous imbalances aggravated by global village forces.
An historically unprecedented mess has been created by compromised
central bankers and inept economic advisors, whose interference has
irreversibly altered and damaged the world financial system, urgently
pushed after the removed anchor of money to gold. Analysis features
Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics
with the US Economy and US Federal Reserve monetary policy.

Debate stirs on whether the financial structure of the USEconomy is
broken irreparably. Debate stirs on whether actions taken in the last
year or two have put the nation on a path that can even achieve
stability, let alone recovery. Debate stirs on whether a harmful
syndicate has taken control of the USGovt financial ministries, let
alone be removed. Debate stirs on whether lack of US Federal Reserve
audits and disclosure of their accounting is integral to sustaining
the syndicate control. Debate stirs whether the nationalizations have
actually enabled adoption of wrecked assets and concealed executive
ransacking. Debate stirs whether the mountainous federal deficits, the
nationalizations of essentially Black Holes, and the endless war
spending make deficit reduction a distant dream. Debate stirs on
whether the gargantuan accumulation of USFed reserves will spill over
to produce widespread price inflation. Debate stirs on why after
causing the foundation failure of the US financial structure from Wall
Street and the USFed offices, these institutions not only remain in
power but demand greater power.

It is my contention that the US financial structures broke without any
remote potential for repair and revival in the summer of 2007. The
symptoms became obvious in the summer of 2008 to the slower observers
with visible shock waves bathed in crisis. The reactions from shock
waves have come since the autumn months of 2008. The system has
broken, but the syndicate in control wishes to keep the music going,
keep the machinery turning, keep the money flowing, so that they can
continue the racket, bury the bond frauds, process the bad paper into
USGovt coffers, continue to corner the printing press operations, and
continue to con the USCongress into granting more funds. Nobody seeks
justice and prosecution for over $1 trillion in mortgage bond fraud.
Nobody seeks to remove key Wall Street firms from their command posts
within USGovt finance ministries. Nobody seeks even to locate the
missing $50 billion from the Iraq Reconstruction Fund. Foreigners have
been very busy since the autumn 2008, as they dismantle the levers,
knock down the pillars, block the escape routes, yank the collateral
from the paper marketplaces, and otherwise thwart the US-UK
structures.

To claim that the system can be put on proper stable footing is
lunatic. To expect that the nation can be recalibrated so as to return
to the Good Ole Days of US global dominance and leadership is lunatic.
To urge that the economic signposts, megaphones, and billboards be
once again guided by policies best described as Bubbly Economic
Mythology is lunatic. Yet delusional Americans actually believe the
dominant ship at sea can lead as flagship, when it has taken on more
water than the Titanic. Since the autumn months of 2008, marred by the
Lehman Brothers failure, marred by the Fannie Mae adoption, marred by
the AIG adoption, punctuated by a shameful 0% interest rate policy
(ZIRP) and a green light for limitless money creation (QE), the United
States has lost any semblance of leadership. Instead, its leadership
has earned scorn, criticism, and disrespect. The last people on the
globe to comprehend the American condition of failure, corruption, and
military aggression seem to be the Americans themselves, who live
within the USDome of Perception. The US press networks do not cover
the global Paradigm Shift underway that will change its landscape
radically.

The clearest conclusions center on almost nothing put on a sustainable
viable course for the nation. Amplification and widened breadth of all
that failed cannot serve as the core for revival or recovery, let
alone stability. Yet such policies seem the only ones our hapless bank
leaders are able to execute. It is a dog returning to gobble his
vomit. It is akin to managers urging their worst workers to intensify
their efforts, and to join the ranks of management. These Keynesians
cannot admit that the central bank franchise model has failed, not to
be resurrected. In my view, the debates, the foundations, and the
reactions scream two major messages. 1) The system is out of control,
with the drivers ramming down the accelerator for even more of
everything that failed, for a locomotive within a monetary system
based upon illegitimate money. 2) The USGovt finances are heading
toward a recognized failure, identified by both a banking system
bankrupt seizure and a USTreasury default. The nation cannot come to
grips with the bold stark notion that foreigners control our fate,
from their revolt against the USDollar as a global reserve currency,
from their revolt in supplying additional credit to the USGovt and
USEconomy. The reaction so far to crisis has been to rely more heavily
upon the Printing Pre$$, to monetize the debts, and to conceal such
operations. Things are out of control!

In fact, my forecast is for systemic failure. Its primary elements
will be a failed US banking system (as in seizure) and a USTreasury
Bond default (as in coerced restructure). Again, martial law and
declaration of economic emergency will be the final solution. Two
years ago, my analysis regularly mentioned martial law and imposed
order to handle the chaos from a disintegrated economy and insolvent
dysfunctional banking system. Here we are in the present, when such
forecasts do not sound so outrageous anymore. The Jackass has featured
a string of seemingly outrageous forecasts that have come true. The US
system is credit dependent, and credit will soon be cut off, in the
next chapter of isolation. The Printing Pre$$ is a temporary solution,
en route to a failed state. The US leaders and citizens do not learn
from history. They defy history amidst delusions of omnipotent power.
See the Weimar Republic, which has gone global! Even the World Bank
led by yet another Goldman Sachs pupil warns the Untied States not to
assume the USDollar will remain the unchallenged global reserve
currency.

GOLD IS RESILIENT
The true sanctuary is gold, in the face of debauchery of paper money.
We see some clear first hand evidence of the 'Beijing Put' at work. It
could provide a banking system foundation, except that the Gold Cartel
and Banker Elite would have to forfeit power, maybe face poverty.
Notice the quick recovery. With a slightly lower gold price, the
off-take delivery of physical gold has been magnificent, much greater
than a week or two ago. The Wall Street banksters are shocked to learn
that demand is not isolated, but rather comes from diverse global
sources. The Powerz threw all they could at gold, mentioned some
half-baked story about I.M.F. gold sales (more like closure to decade
old short sales), and upped the ante of controversail gold futures
contract sales. Notice the moving averages all aligned and rising.
Notice the stochastix cyclical index that come down quickly to the 20
low trigger, ready to rise on a quick reload. The response breakout
was very typical, seen a million times before. The breakout loses the
amateurs and fast traders who miss the big picture. Like a diver off a
springboard, the dive commences for a lift upward. The pullback was
really miniscule. The recovery was rapid and impressive, in symmetry
with the suddenness of the controlled correction. The Chinese are
obviously thanking the US gold merchants who offer the Middle Kingdom
yet more gold bullion at reasonable prices. The Chinese want to
maximize their accumulation of gold from the PaperBoyz, at the best
price. They do not want a catapult upward in the gold price. They want
a gradual controlled price. Expect continued accommodation.

The Demise of the Dollar