Jim Sinclair’s Commentary
Power shifts from the West to the East – that is what the meeting this week is all about.
The USA cannot grant China what it wants, yet China has the power not to grant the USA what they want.
The pea brained talking head jerks are simply flag waving ignoramuses. Monetary policy cannot be made in the West ever again without consulting the East.
Top US officials seek to reassure Chinese
By MARTIN CRUTSINGER (AP)
WASHINGTON — President Barack Obama put forward his top economic officials on Monday to try to reassure China that the U.S. will not let huge budget deficits or runaway inflation jeopardize the value of Chinese investments here.
Among the officials meeting with Chinese representatives Monday, the first day of two-day talks, were Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, National Economic Council Director Lawrence Summers and Peter Orszag, Obama’s budget director.
U.S. officials told reporters that the U.S. side stressed to the Chinese that the United States has a plan to bring the deficit down once the economic crisis has been resolved. Officials said Bernanke discussed the Fed’s exit strategy from the current period of extraordinary monetary easing.
On the Chinese side, Assistant Finance Minister Zhu Guangyao told reporters that Beijing and Washington had "profound exchanges" on the issue of the U.S. economy.
The Chinese, who have the largest foreign holdings of U.S. Treasury debt at $801.5 billion, have been expressing worries that soaring deficits could spark inflation or a sudden drop in the value of the dollar, thus jeopardizing their investments.
Jim Sinclair’s Commentary
There is something about this report that is too good to be believed at close to 10% unemployment and home prices still declining in most major building markets.
U.S. Economy: New-Home Sales Up 11%, Most Since 2000 (Update1)
By Courtney Schlisserman and Bob Willis
July 27 (Bloomberg) — Purchases of new homes in the U.S. climbed 11 percent in June, the biggest gain in eight years, underscoring evidence that the deepest housing slump since the Great Depression is starting to stabilize.
Sales increased to a 384,000 annual pace, higher than every forecast in a Bloomberg News survey and the most since November, figures from the Commerce Department showed today in Washington. The number of houses on the market dropped to the lowest level in more than a decade.
Deutsche Bank Securities Inc. and Goldman Sachs Group Inc. economists said today’s figures signal an end to the slide in home construction and sales. While that means the drag on economic growth will turn to a stimulus in the second half of the year, property values are likely to continue falling and rising unemployment will temper the recovery, analysts said.
“We’re barely past the housing bottom, this thing is still fragile,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York. “It’s not premature to talk about home prices bottoming — it’s somewhere in the next three to six months. There is light at the end of the tunnel.”
Builders’ stocks jumped, with the Standard and Poor’s Supercomposite Homebuilding Index gaining 4.4 percent. The broader S&P 500 Stock Index was up 0.3 percent to close at 982.18. Treasuries, which fell earlier in the day, remained lower, with benchmark 10-year note yields rising to 3.72 percent at 4:37 p.m. in New York from 3.66 percent at last week’s close.
Jim Sinclair’s Commentary
Even cartoonists are tired of MOPE.
Jim Sinclair’s Commentary
Here are a few thoughts for you to ponder:
MOPE:
1. The dollar is down because equities are up is pure MOPE. One of the reasons equities are up is because the dollar is down.
2. Bernanke on PBS: “Everything is getting better and we look forward to a stronger economy than prior to the credit problem.” Thank MOPE for that one as well.
3. If you do not speak about the problems and simply look the other way, the thought is they will just go away.
See the article below.
Lost Value of Equities in U.S. State and Local Government Pension Plans: Now $1 Trillion
July 27, 2009
David Hunkar
In the U.S., the pension plans of state and local governments have a large portion of their assets in equities. Due to this high exposure to equities, the plans suffered severe losses as the markets fell hard until March this year.
The average asset allocation of the typical U.S. Define Benefit (DB) plan has 60% in equities, 30% in fixed income and 10% in other assets.
“Public pension plans of U.S. State and local authorities also suffered severe losses due to high equity exposure and substantial leverage. The financial crisis has reduced the value of equities in State and local authorities’ DB plans by about US$1 trillion. These changes will become evident over time because State and local authority plans smooth both gains and losses by averaging the market value of assets over a five year period. However, they will be large as public plans in the United States have on average 60 percent of assets in equities. In addition, they leveraged themselves to fund liabilities. In general, state and local plans had an average funding ratio of 87 percent in 2007 which, by October 2008 would have declined to 65 percent if assets were valued at market values (Munnell et al. (2008) (the impact of smoothing is shown in Figure 13). In the optimistic scenario that assets level return to the 2007 values, funding ratios are projected to increase to 75 percent in 2013. Under the pessimistic scenario that asset values remain at the level of end 2008, funding ratios are expected to further decrease to 59 percent. In both scenarios, liabilities are assumed to grow at 5.7 percent per year.”
Jim Sinclair’s Commentary
Browning up will not accomplish what the Chinese want. Do you recall when I told you they were extremely angry?
Trying to suggest the West and China have had a history of close relationships based on friendship is a new reading of history.
Regardless of any MOPE rhetoric released, the Chinese want an alternative to the US dollar in the form an "SSCI" and a reversal of the explosion of debt offerings that are exemplified by this week’s huge treasury offering.
There is a fat chance that Washington will be willing to in the first place (SSCI) or able to in the second place (debt offering reduction).
Do you really believe the authors wrote this?
A New Strategic and Economic Dialogue with China
Few global problems can be solved by either country alone.
JULY 27, 2009, 9:34 A.M. ET
By HILLARY CLINTON AND TIMOTHY GEITHNER
When the United States and China established diplomatic relations 30 years ago, it was far from clear what the future would hold. In 1979, China was still emerging from the ruins of the Cultural Revolution and its gross domestic product stood at a mere $176 billion, a fraction of the U.S. total of $2.5 trillion. Even travel and communication between our two great nations presented a challenge: a few unreliable telephone lines and no direct flights connected us. Today China’s GDP tops four trillion dollars, thousands of emails and cellphone calls cross the Pacific Ocean daily, and by next year there will be 249 direct flights per week between the U.S. and China.
Jim Sinclair’s Commentary
Sure, everything is just dandy, however the problem is still there, still huge and growing.
Don’t worry though – MOPE assures us the problems are behind us.
Five Firms Hold 80% of Derivatives Risk, Fitch Report Finds
First-quarter financials mark the first time comprehensive derivatives disclosure was mandated for all U.S. companies.
David M. Katz – CFO.com | US
July 24, 2009
Members of Congress probing threats to the global financial system — especially the threat of concentration of risk — will have a lot to ponder in newly mandated disclosures highlighted by a Fitch Ratings report issued last week. While derivatives use among U.S. companies is widespread, an "overwhelming majority of the exposure is concentrated among financial institutions," according to the rating agency’s review of first-quarter financials.
Concentrated, in fact, among a mere handful of financial-services giants. About 80% of the derivative assets and liabilities carried on the balance sheets of 100 companies reviewed by Fitch were held by five banks: JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley. Those five banks also account for more than 96% of the companies’ exposure to credit derivatives.
About 52% of the companies reviewed disclosed there were credit-risk-related contingent features in their derivative positions. Such features require a company to post collateral or settle outstanding derivative liabilities if there’s a downgrade of the company’s credit rating.
The Fitch analysts also found that just 22 companies disclosed the use of equity derivatives. Just six nonfinancial firms — IBM, General Motors, Verizon, Comcast, Textron, and PG&E — reported exposure to share-based derivatives.
For the report, the rating agency reviewed first-quarter 2009 filings of the companies, which come from a range of industries and represent almost $6.4 trillion in aggregate outstanding debt. The companies also recorded a total notional amount of derivative positions of more than $296 trillion.
Jim Sinclair’s Commentary
It looks like Bernanke is taking the entire Federal Reserve System to the public, firming my belief of bad blood between the present administration and the Fed over the subject of infinite QE use.
Bernanke Feared a Second Great Depression
Taking His Case to the People, Fed Chairman Defends Aggressive Actions to Stem Financial Crisis, Calls for Regulatory Overhaul
By SUDEEP REDDY
JULY 27, 2009
KANSAS CITY, Mo. — Federal Reserve Chairman Ben Bernanke on Sunday said he engineered the central bank’s controversial actions over the past year because "I was not going to be the Federal Reserve chairman who presided over the second Great Depression."
Speaking directly to Americans in a forum to be shown on public television this week, Mr. Bernanke pushed back against Kansas City area residents who suggested he and other government officials were too eager to help big financial institutions before small businesses and common Americans.
"Why don’t we just let the behemoths lay down and then make room for the small businesses?" asked Janelle Sjue, who identified herself as a Kansas City mother.
"It wasn’t to help the big firms that we intervened," Mr. Bernanke said, diving into a discourse on the damage to the overall economy that can result when financial firms that are "too big to fail" collapse.
"When the elephant falls down, all the grass gets crushed as well," Mr. Bernanke said. He described himself as "disgusted" with the circumstances that led him to rescue a couple of large firms, and called for new laws that would allow financial firms other than banks to fail without going into bankruptcy.
Jim Sinclair’s Commentary
Remove the SPIN from this article and the title might be "No reinstatement of the uptick rule means a sell out to pressure from special interests." Let’s keep up the pressure until the Canadian back door for naked short selling is closed.
The rule against naked short selling was originally only applicable to financial companies and selected others. Does this apply only to them?
SEC rule on ‘naked’ short-selling now permanent
SEC makes emergency rule targeting ‘naked’ short-selling permanent
By Marcy Gordon, AP Business Writer
On Monday July 27, 2009, 2:25 pm EDT
WASHINGTON (AP) — Federal regulators on Monday made permanent an emergency rule aimed at reducing abusive short-selling, put in at the height of last fall’s market turmoil.
The Securities and Exchange Commission announced that it took the action on the rule targeting so-called "naked" short-selling, which was due to expire Friday.
Short-sellers bet against a stock. They generally borrow a company’s shares, sell them, and then buy them when the stock falls and return them to the lender — pocketing the difference in price.
"Naked" short-selling occurs when sellers don’t even borrow the shares before selling them, and then look to cover positions sometime after the sale.
The SEC rule includes a requirement that brokers must promptly buy or borrow securities to deliver on a short sale.
At the same time, the SEC has been considering several new approaches to reining in rushes of regular short-selling that also can cause dramatic plunges in stock prices.
Jim Sinclair’s Commentary
The release from the SEC on Naked Short Selling is available at
http://www.sec.gov/news/press/2009/2009-172.htm
A reading of regulation 204 Temporary would indicate that all equities are government by the new and permanent rule against naked short selling.
It is still odd that in making 204T permanent there was no clarification that the permanent rule superseded the original selective 204 list.
http://www.sec.gov/divisions/marketreg/tmcompliance/regsho204t-secg.htm
Jim Sinclair’s Commentary
Crime pays?
Jailed NatWest fraudsters to get early release
By Ailish O’Hora
Monday July 27 2009
Three disgraced bankers, the so-called "NatWest Three", who were convicted in the US of conspiring with former Enron executives to dupe the bank out of $20m (€14m), are to be released from a British jail in October, having served just half of their sentence and having failed to meet a pledge to repay the money they stole.
Gary Mulgrew, Giles Darby and David Bermingham, former bankers at NatWest Greenwich, which is now part of taxpayer-controlled Royal Bank of Scotland (RBS), are to be released on tag this autumn.
Sentence
The men were handed a 37-month sentence in February 2008 by US judge Ewing Werlein. Had they not been transferred to the UK last January, it is likely they would have served at least 85pc of their sentence.
The bankers waged an unsuccessful campaign against extradition to the US.
Mulgrew, Darby and Bermingham at first protested their innocence but after transferring to Texas they changed tack, each entering guilty pleas.
