Tuesday, May 26, 2009

How Hyperinflation Will, Without Any Doubt, Be Created In The USA

Posted: May 26 2009 By: Jim Sinclair

Filed under: General Editorial

Dear CIGAs,

With the Fed prepared to buy Treasuries, the US will not at this time face a failed auction. If they weren’t that would be the scenario we would now be facing.

The under-current of the utilization of quantitative easing is hyper inflationary because it is so dollar negative.

Remember hyperinflation is NOT an economic event, it is a currency event.

If you study market history you will see the glaring truth that the Weimar experience would not have happened if German debt markets were not used as a vehicle to heavily short the Weimar Mark.

It was the Weimar mark short sellers that created the Weimar hyperinflation just as the OTC derivative shorts will cream the US dollar with the unavoidable effect being hyperinflation.

I know of what I speak. About the above there is no doubt. There is no real argument to the contrary and you can count the number of those outside of our community on one hand who understand how hyperinflation is created.

Saudi warns of $150 oil within three years

Published: May 25 2009 18:59 | Last updated: May 25 2009 18:59

Saudi Arabia warned oil prices could spike to beyond the near $150 record high of 2008 within three years as it joined other energy leaders on Monday to call for more investment to boost production over the long term.

Energy ministers and officials at the Group of Eight energy summit wrapped up the two-day meeting by urging the industry to pump money into projects to expand capacity despite the credit crisis, which has put the brakes on investment.

Saudi Arabian Oil Minister Ali Naimi said the world was heading for a fresh spike after the current phase of faltering demand and lower prices, which he said reflected the economic downturn rather than being an indicator of things to come.

”We are maintaining our long-term focus rather than being swayed by the volatility of short-term conditions,” he said in prepared remarks at the summit. (more)

Home Prices Continue Downward March


U.S. home prices continued their multiyear tumble in March, according to the S&P Case-Shiller home-price indexes, as the downdraft shows no near-term signs of abating.

Meanwhile, U.S. consumer confidence improved sharply in May, especially in expectations for the economy six months from now, a report released Tuesday said.

For the first quarter, the S&P/Case-Shiller U.S. National Home Price Index posted a 19.1% drop from a year earlier, the biggest quarterly decline for the reading's 21-year history. S&P Case-Shiller releases 10-city and 20-city indexes every month, but also releases a broader national index every quarter.

Separately, the monthly numbers showed 15 of 20 major metropolitan areas posted price declines of more than 10% from a year earlier, with the Sun Belt continuing to be hit hardest. Nationally, home prices are at levels similar to the fourth quarter of 2002. (more)

S&P 17 week cycle

click here to watch video

From Bubble Housing Glory to Housing Bust Toxic Mortgage Pain.

Alt-A and Pay Options ARMs: Four States make up 46% of Alt-A loans. Examining California, Florida, Nevada, and Arizona. From Bubble Housing Glory to Housing Bust Toxic Mortgage Pain.

Four states have felt the joy of housing appreciation and the agony of the housing bust in a very deep and extreme way. Without a doubt, this economic crisis is touching every corner of the global economy but four states have seen the multifaceted punishment of this housing and credit bust. Those states are California, Florida, Nevada, and Arizona and these past days I was able to see first hand three of the states. Spending time in these few states and contributing my own economic stimulus to these economies, I realize that the housing downturn still has further to go. These states are ground zero for the coming Alt-A and pay Option ARM wave that will be crashing down on us later in the year.

Driving through these states and the vast subdivisions hugging the desert you can quickly put a face to the economic devastation. How many of these homes sit empty? Will these homes ever have occupants? How much money has been lost in this pursuit of endless housing wealth? You also witness the countless commercial real estate developments that encircle these areas with your typical chain fast food restaurants and your mega shopping center. Some don’t realize that these commercial real estate developments are usually brought out 12 to 18 months after the construction of the new subdivisions. That is, the commercial real estate bust is the next big thing to watch since these stores were developed to service a population that isn’t moving in. (more)

Federal Reserve holding over $2 trillion in the Darkest Balance Sheet in Financial History.

The U.S. Treasury and the Federal Reserve have arguably two of the least transparent balance sheets known to humankind. This wouldn’t be such a big issue if the amount of money funneled into these organizations was small. That is not the case. The Federal Reserve since October of 2008 has held on its balance sheet over $2 trillion in reserve bank credit and also, Federal Reserve Holdings of U.S. Treasuries. This of course is the biggest bait in switch in history because in exchange for U.S. Treasuries, banks can offload practically any collateral (i.e., mortgages, auto loans, credit card loans, etc). The U.S. Treasury and Federal Reserve are creating the biggest put option in the history of the world and the American taxpayer stands to lose big. (more)

Dollar Shorts at Highest Since Pre-Crisis

FX Commentary From CMC Markets UK For May 26, 2009

This week’s $100 billion in new US Treasury auctions of 2, 5 and 7-year notes appears likely to undergo extra scrutiny regarding the appetite from foreign investors considering the vicious feedback loop that has been weighing on the value of the US dollar and the price of US treasuries. Last week’s close above the $1.40 level in EURUSD was among the high profile technical signals supporting the potential for prolonged EUR strength ahead against USD, which could serve as a proxy for the broader USD flows. A weekly close below $1.37 in EURUSD would appear necessary to deal any serious relief to USD-sentiment.

Last week’s data from currency futures showed EUR longs vs. USD exceeded the shorts by 12,250 contracts—the highest level since the week of July 15 (the week when EURUSD hit its record high). Meanwhile, JPY longs vs. USD exceeded the shorts by 6,000 contracts, the highest since March. Aussie net longs vs. USD also hit their highest since July, reflecting the extent of apparently deepening anti-USD sentiment among the speculative (non-commercial) community. Considering that EUR and JPY net longs vs. USD are about 11 times lower than their record highs, speculators seem to have plenty of upside against the USD in terms of quantity as well as price. Any signs of weakness in Wednesday’s auction of $35 bln in 5-year T-notes and Thursday’s auction of $25 bln in 7-year T-notes may give more fundamental leeway for speculators to pile on shorting the US currency and build up a gradual path towards $1.47 vs. EUR and 91 yen.
FX carry trades searching the extra yield away from USD and JPY into commodity and EM currencies may closely watch the ensuing retreat in risk appetite, particularly the 880, 8,200 and 4,300 levels in the S&P500, Dow-30 and FTSE-100 respectively. These levels acted as substantial points of resistance in April, which have now turned to considerable points of support. A breach below these levels would be the next litmus test for whether dollar stability will re-establish itself under rising risk aversion. The gauges of the “sell-US assets trade have been cogently manifested last week via a rare negative trifecta of falling USD index, falling treasury prices and falling equity indices.