Dear CIGAs,

Happy 12th Birthday to JB Slear’s "Radar."

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Jim Sinclair’s Commentary

As the real economy begins to suffer significantly, as such are the direct implications of the potential bankruptcy of CIT, bankruptcies year to year will exceed a 50% increase.

This does not make for increased auto sales as GM comes out of paper shuffling into the real world of sales.

Bankruptcy Filings up 33 Percent over a 12-month Period: Total 12-month Total of Bankruptcy Filings 1.2 Million. In last Report, Filings up 27 Percent in one month.

Bankruptcy filings are soaring in the United States.  In the last data point, we had 134,282 bankruptcy filings for the month of March 2009.  Bankruptcy data usually lags 3 or 4 months but the trend is ominous.  For the last 12 months some 1.2 million bankruptcy filings have occurred.  Much of this is linked to the26,000,000 unemployed or underemployed Americans being unable to pay their bills or even service their debt.  What is more telling is the amount of Chapter 7 bankruptcies occurring since these are straight liquidations and not like a Chapter 13 restructuring.

Let us examine the most recent data for bankruptcies that highlight this troubling trend:

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What you’ll notice is a significant spike in the March data point.  This monthly jump was enormous.  This was the largest number of quarterly bankruptcy filings since December of 2005 when many were rushing to beat the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.  Yet even with the law making it harder for people to file bankruptcy, most are being forced into austerity and it is hard to squeeze anything further out of a turnip.  What this tells us is that for average Americans there is still a significantly large amount of pain in the real economy.  The unemployment rate is understated by the 9.5 percent headline number.

More… ^[3]

 

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Jim Sinclair’s Commentary

Federal guarantees are for showcasing, not for being taken seriously. Or are they?

"For counter-parties to voluntarily terminate those contracts makes no sense,” Havens said in an interview. “There’s no question that asset values have soured on a global basis. With the faith and credit of the U.S. government backing those guarantees, why would they give that up?”

AIG’s European Derivatives May Take Decades to Expire

July 17 (Bloomberg) — American International Group Inc.’s trading partners may force the insurer to bear the risk of losses on corporate loans and mortgages for years beyond the company’s expectations, complicating U.S. efforts to stabilize the firm, analysts said.

European banks including Societe Generale SA and BNP Paribas SA hold almost $200 billion in guarantees sold by New York-based AIG allowing the lenders to reduce the capital required for loss reserves. The firms may keep the contracts to hedge against declining assets rather than canceling them as AIG said it expects the banks to do, according to David Havens, managing director at investment bank Hexagon Securities LLC.

“For counterparties to voluntarily terminate those contracts makes no sense,” Havens said in an interview. “There’s no question that asset values have soured on a global basis. With the faith and credit of the U.S. government backing those guarantees, why would they give that up?”

The falling value of holdings backed by the swaps may force AIG to post more collateral, pressuring the insurer’s liquidity and credit ratings in a repeat of the cycle that caused the firm’s near collapse in September, Citigroup Inc. analyst Joshua Shanker said last week. The insurer needed a U.S. bailout valued at $182.5 billion after handing over collateral on a different book of swaps backing U.S. subprime mortgages.

The average weighted length of the European swaps protecting residential loans is more than 25 years, while the span tied to corporate loans is about 6 years, AIG said in a regulatory filing. Contracts covering corporate loans in the Netherlands extend almost 45 years, and the swaps on mortgages in Denmark, France and Germany mature in more than 30 years.

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Jim Sinclair’s Commentary

The Bank of You is all you can trust. "Morgan Stanley will pay $4.4 million to settle a class-action lawsuit with brokerage clients who bought precious metals and paid storage fees, according to a court filing"

UPDATE 1-Morgan Stanley to settle class-action lawsuit
Tue Jun 12, 2007 7:22pm BST

NEW YORK, June 12 (Reuters) – Morgan Stanley (MS.N: Quote, Profile, Research) will pay $4.4 million to settle a class-action lawsuit with brokerage clients who bought precious metals and paid storage fees, according to a court filing.

The proposed settlement, which must be approved by the federal court in Manhattan, includes a cash component of $1.5 million and economic and remedial benefits valued at about $2.9 million, according to a court filing on Monday.

The suit, filed in August 2005, alleged that Morgan Stanley told clients it was selling them precious metals that they would own in full and that the company would store.

But Morgan Stanley either made no investment specifically on behalf of those clients, or it made entirely different investments of lesser value and security, according to the complaint.

"While we deny the allegations, we settled the case to avoid the cost and distraction of continued litigation," Morgan Stanley said in a statement.

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Jim Sinclair’s Commentary

Apply a little logic here. Paper exchanges are making moves towards settlement in paper products while physical depositories are reaching maximum capacity. That can only mean the exchange warehouses cannot stand a physical audit and do not have the gold to cover the short interest.

The real question is if this isn’t a "Round Robin Ponzi" because logically the EFT cannot be holding significant physical gold, it is paper as well. Therefore Alchemy is real with one rub: you turn paper into gold and it turns back into paper.

Swiss banks running out of storage space for gold bullion
Worries about the economy and the success in marketing gold ETFs has seen Swiss banks finding difficulty in meeting secure storage requirements for gold bullion.
Author: Lawrence Williams
Posted:  Friday , 17 Jul 2009

In a note entitled No more space for Gold Bars, Swiss news website 20 Minuten Online reports that Swiss banks are running out of secure storage space for gold bullion held by investors and institutions.  Fears of hyperinflation, the economic downturn and the success of gold index funds (ETFs), which are supported by physical gold, has led to a run on precious metals investment – and in gold in particular, and in the necessary secure storage space in which to hold it..

One Swiss bank, earlier this year, reported that it was having to relocate some of its stored silver bullion to another site to make room for gold.  The Zurich Kantonal bank put this down to the success of its gold ETF.

The website reports another Swiss investment banker despairing "We have the need to store more gold for our clients but are finding it difficult to find secure storage facilities".  Gold storage makes high demands on security which is what is making the gold holding task more difficult.  Few banks will divulge exactly where their gold is stored for security reasons.

Another banker reported that his bank still had space but that it is beginning to run out.

Some of the problems are being handled by improving the storage systems in existing space.  As one banker commented "A 12.5 kilo gold bar only occupies about the same amount of space as a tetrapak of milk".

While the big U.S. based ETF, the SPDR Gold Trust has recently seen a relatively small decline in its gold holdings with some investors seeking better returns in the markets, the ever-cautious Swiss seem to be seeing continuing growth in locally managed ETFs.  A recent report noted that Swiss Bank, Julius Baer, for example, was still seeing a 3.3% growth in its gold ETF in the current week.  And even though the Swiss Central Bank has been selling gold via the Central Bank Gold Agreement, it still holds 38% of its foreign exchange reserves in the yellow metal.

More… ^[7]

 

Jim Sinclair’s Commentary

Once upon a time Canada was the center of world mineral exploration, but then came the hedge funds.

Chinese companies eyeing bargain Canadian miners for gold, coal, copper and uranium
With recent purchase of C$1.74 billion stake in Teck as an example, Chinese metals producers are said to be looking at Canada’s resource companies to tie in commodity supplies with key targets said to be gold, coal, copper and uranium.
Author: By Pav Jordan
Posted:  Monday , 13 Jul 2009

TORONTO (Reuters) – - China’s purchase of a C$1.74 billion ($1.5 billion) stake in Teck Resources (TCKb.TO: Quote) may be just the opening move from the world’s top resource consumer in a strategy to use its unique wealth advantage to become a key source of mining capital for Canadian firms.

Teck said last week it sold a 17.2 percent equity stake to state-owned China Investment Corp in a deal that allows the Canadian miner to pay down its massive debt while expanding China’s portfolio of commodity investments.

The deal underscores how deep China’s pockets are at a time when many sources of credit and financing have dried up in the global recession, even for the biggest miners.

"Most people thought China would take advantage of this dip in commodity prices and, because they’re the only ones with money, take advantage of this financial situation we are in. They have come through big time, be it oil and gas, or any commodity you can think of," David Davidson, an analyst with Paradigm Capital in Toronto, said in an interview after the Teck deal was announced.

Teck is a major producer of copper, metallurgical coal, zinc and gold, all commodities sought by China.

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Jim Sinclair’s Commentary

You know this is coming!

Israeli navy in Suez Canal prepares for potential attack on Iran
Sheera Frenkel in Jerusalem
July 16, 2009

Two Israeli missile class warships have sailed through the Suez Canal ten days after a submarine capable of launching a nuclear missile strike, in preparation for a possible attack on Iran’s nuclear facilities.

The deployment into the Red Sea, confirmed by Israeli officials, was a clear signal that Israel was able to put its strike force within range of Iran at short notice. It came before long-range exercises by the Israeli air force in America later this month and the test of a missile defence shield at a US missile range in the Pacific Ocean.

Israel has strengthened ties with Arab nations who also fear a nuclear-armed Iran. In particular, relations with Egypt have grown increasingly strong this year over the “shared mutual distrust of Iran”, according to one Israeli diplomat. Israeli naval vessels would likely pass through the Suez Canal for an Iranian strike.

“This is preparation that should be taken seriously. Israel is investing time in preparing itself for the complexity of an attack on Iran. These manoeuvres are a message to Iran that Israel will follow up on its threats,” an Israeli defence official said.

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Jim Sinclair’s Commentary

How is Israel going to stand this?

Iran in mass production of long-range, solid-fuel Sejil surface missiles
DEBKAfile Exclusive Report
July 13, 2009, 7:17 PM (GMT+02:00)

Iran is slowing down the manufacture of the Shehab-3 surface missile in favor of mass production of the more accurate two-stage 2,000-kilometer range Sejil II ballistic missile powered with solid fuel, which was successfully tested on May 20, DEBKAfile’s military and Iranian sources report.

More than 1,000 new Sejil IIs are projected to come off production lines in five years, at the rate of 200 a year.

Western sources say the Iranians are over-ambitious and can deliver no more than 10-15 missiles a year at present, although with a huge multi-billion dollar investment they might raise output to 30.

Liquid-fuel missiles like the Shehab take hours to prepare for firing, during which time they are exposed to oversight by US and Israel spy satellites, whereas the Sejil because it is powered by solid fuel has the huge advantage of stealth. It can only be detected by military satellites and early warning radar systems like the American FBX-T posted in the Israeli Negev after it is airborne and winging towards target.

Iran has also recruited Chinese missile experts to assist in the production of mobile launchers for the Sejil II. The combination of the solid-fuel Sejil mounted on mobile vehicles will give an Iranian missile attack the advantage of surprise, because of the difficulty of tracking and targeting them from space or the air.

More… ^[10]

Jim Sinclair’s Commentary

Now 90% of the planet’s nations call for dollar diversification. This does not speak well for marketing the ever increasing supply of US Treasury offerings and is therefore very negative for the US dollar.

Developing world calls for ‘new world order’

More than 50 heads of state from the developing world met Wednesday in Egypt to tackle the fallout from the global economic meltdown, with calls for a "new world order" to prevent a repeat of the crisis.

Cuban President Raul Castro said in a speech at the opening session of the Non-Aligned Movement summit that the financial crisis had hit developing nations the hardest.

"Every country in the world must seek just solutions to the global economic crisis," Castro told the 118-member body at the gathering in the Red Sea resort of Sharm el-Sheikh.

"We call for a new monetary and economic world order… we must restructure the world financial system to take into consideration the needs of developing countries."

Global power dynamics also need to be addressed, Libyan leader Moamer Kadhafi said, demanding a restructuring of the UN Security Council which he branded a form of terrorism "monopolized by a few countries that are permanent members."

More… ^[11]

Jim Sinclair’s Commentary

You knew this was going to happen according to my 2006 Formula.

Still seeing it happen is shocking. This is not good for the US dollar or US debt. It will happen in 1000s cities and towns before this is over.

Dumping CIT, and it is dumped, is a terrible mistake. The purchase of bits and pieces will not avoid the awful implications of this mistake.

City suspends payment of contracts
Friday, July 17, 2009

Running out of cash because of the state budget deadlock, the City of Philadelphia has stopped paying many of its bills until the impasse is resolved, City Finance Director Rob Dubow said this morning.

The city must temporarily withhold about $120 million in July and August to avoid running out of cash completely, Dubow said. Payments to contractors stopped Wednesday. Dubow, Budget Director Stephen Agostini and Treasurer Rebecca Rhynhart said that the city will pay its payroll, benefits, debt service and "emergency" contracts. The $4 million a month paid to foster parents, for instance, is considered an emergency, and other contracts will be considered on a case-by-case basis.

In a noon press conference, Mayor Nutter said the city would ask vendors to "understand where we are."

"We’re asking them to work with us through this crisis," Nutter said.

The city is suffering for a number of reasons, all related to the state budget, city officials said.

First, the city anticipated receiving nearly $100 million in state payments in July and August that are frozen until a new budget passes. Second, the city is asking the legislature to approve a 1-cent increase in the sales tax, which would generate about $9 million a month, beginning Aug. 1. Third, the city had planned, as it does every year, to take out a $275 million, short-term "tax revenue anticipation note" or TRAN, which municipalities use to provide cash to cover expenses until their tax revenues are collected.

More… ^[12]