Jim Sinclair’s Commentary
Outside of the Wall Street party in the real economy things are extremely painful.
Should CIT implode the real economy will simply roll over dead.
4 million home loans are delinquent
Mortgage lenders say the flood of foreclosures has not yet crested. Highwater mark should come this fall.
By Les Christie, CNNMoney.com staff writer
Last Updated: August 20, 2009: 5:46 PM ET
NEW YORK (CNNMoney.com) — The number of Americans who have fallen at least 30 days behind on their home loan payments jumped 44% in the second quarter from a year ago, according to an industry report.
That puts delinquencies at a record 9.24% of mortgages, according to the National Delinquency Report from the Mortgage Bankers Association (MBA). That represents more than 4 million of the 45 million borrowers covered by the report.
What the rate does not include, however, are loans already in foreclosure. Some 4.3% of all the mortgages are in that stage, up from 3.85% three months earlier and 1.55 percentage points from one year ago.
The combined percentage of loans past due and those already in foreclosure hit 13.16% during the quarter, the highest ever recorded by the MBA survey
"There was a major drop in foreclosures on subprime ARM loans," said Jay Brinkmann, chief economist for the MBA, in a prepared statement. "The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase."
Jim Sinclair’s Commentary
With a 70% recidivism this massive release is extremely poor judgement.
Fire the politicians. Keep the prisoners.
California bill would free more than 27,000 inmates
(CNN) — A controversial bill that California legislators say would allow the early release of more than 27,000 inmates from crowded prisons will be taken up by the state Assembly on Monday.
The Senate on Thursday passed the corrections package 21-19, after Senate President Pro Tem Darrell Steinberg, D-Sacramento, assured senators the changes would protect the public from the most violent offenders.
The legislation also would direct more resources toward parolees, he said.
Senate Republicans say the bill would undermine public safety. All 15 Senate Republicans voted against the measure.
Both houses of the legislature are controlled by Democrats.
Consideration of the bill comes as California faces a mid-September deadline for reducing its prison population by about 40,000 inmates. A special panel of three federal judges issued the order, contending the crowded prison system violates prisoners’ constitutional rights.
Jim Sinclair’s Commentary
The dollar is toast on a simple supply/demand equation.
Whatever official sources say multiply that number by two.
AP sources: $2 trillion higher deficit projected
Higher number over next decade could spell trouble for Obama in Congress
WASHINGTON – The Obama administration expects the federal deficit over the next decade to be $2 trillion bigger than previously estimated, White House officials said Friday, a setback for a president already facing a Congress and public wary over spending.
The new projection, to be announced on Tuesday, is for a cumulative 2010-2019 deficit of $9 trillion instead of the $7 trillion previously estimated. The new figure reflects slumping revenues from a worse economic picture than was expected earlier this year. The officials spoke only on the condition of anonymity ahead of next week’s announcement.
Ten-year forecasts are volatile figures subject to change over time. But the higher number will likely create political difficulties for President Barack Obama
in Congress and could create anxiety with foreign buyers of U.S. debt.
Earlier this week, the White House revealed that it expects a budget deficit for the fiscal year ending Sept. 30 to be nearly $1.6 trillion. That figure was lower than initially projected because the White House scratched out $250 billion that it had initially added to the budget as a bank rescue contingency. The administration ultimately did not ask Congress for that money.
Still that number, together with the 10-year projection, represents a huge obstacle for an administration trying to undertake massive policy overhauls in health care and the environment.
Jim Sinclair’s Commentary
Cash for Clunkers, the Washington give away, ends in a bureaucratic nightmare.
Only 37% of dealer requests for payment have been processed. This type of expert administration of business is going run GM.
‘Clunkers’ to Close After Fueling Sales, Dealer Anger (Update4)
By Angela Greiling Keane
Aug. 21 (Bloomberg) — The U.S. “cash for clunkers” trade-in program will stop accepting applications on Aug. 24, bringing to a close an effort that helped revive auto sales and drew the ire of dealers for slow repayments.
The clunkers plan, which offers auto buyers discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles, has recorded more than 489,000 dealer transactions worth $2.04 billion in rebates, according to Transportation Department data released today.
The deadline will give car dealers and buyers time to complete purchases and apply for rebates from the remainder of the $3 billion provided by Congress, the department said. Dealers have complained of difficulty running their businesses while awaiting program payments, and the agency said it’s adding workers to help process claims faster.
“Obviously there was a lot more latent demand than many thought,” said Michael Robinet, an analyst at CSM Worldwide Inc. in Northville, Michigan. “That bodes well for the market. But we are past the honeymoon now and we have to see what the market looks like in the post-clunker environment.”
Applications for rebates won’t be accepted after 8 p.m. New York time on Aug. 24, the agency said yesterday.
Jim Sinclair’s Commentary
Pretty soon Joe’s Pizza Parlor can buy a bank for one large pepperoni.
Meanwhile the banking shares index is on a bull tear. The Wall Street / Main Street disconnect is at a spiritual level.
FDIC Is Set to Loosen Rules to Buy Failed Banks
By DAMIAN PALETTA, DAVID ENRICH and PETER LATTMAN
In an attempt to attract more buyers for failed banks, the Federal Deposit Insurance Corp. is expected next week to soften its proposed restrictions on private-equity firms buying collapsed lenders, according to people familiar with the matter.
While FDIC officials still are hammering out details of the final rule, the agency is expected to back away from some parts of its July proposal, including a requirement that buyout firms that bid on failed institutions maintain much thicker capital cushions than banks, these people said.
The FDIC, grappling with 77 bank failures this year, the most since 1992, is trying to strike a delicate balance.
It wants to lure more capital into the banking industry but is wary of putting banks in the hands of investors who might promote risky lending practices or ditch the investments if profits don’t quickly materialize.
The FDIC’s original proposal sparked an outcry among private-equity firms, which warned that the rules were unnecessarily onerous and would deter them from bidding on failed banks.
Jim Sinclair’s Commentary
The FDIC is broke and its income is a total illusion
The FDIC’s Stupid Tax On Banks
Joe Weisenthal Aug. 20, 2009, 2:00 PM
In theory the FDIC acts as a kind of insurance co-op among banks. They’re charged assessments to keep the FDIC’s coffers flush, and when one goes down, the customers deposits are replenished from this money.
That’s in normal times. In abnormal times — when there is a wave of systemic bank failures, such as there is now — it’s not really an insurance organization at all. It’s just the conduit for taxpayer cash to make depositors whole.
The blog Winterspeak wonders: why does the FDIC continue to assess fees, and what are they for? He argues, we think correctly, that FDIC fees are basically a banking tax; they’re not insurance premiums. But then, why are we taxing banks at a time when we want them to loosen the purse strings and lend more. It really doesn’t make sense.
The only reason we keep the assessments, it would seem, is to keep up an illusion that somehow the banking system is self-insured, and that it’s not just backstopped by Uncle Sam. But of course it is. This is a terrible reason to keep up a system. So let’s just have the FDIC purely backstopped by the Treasury, and let’s eliminate this constraint on lending.
Jim Sinclair’s Commentary
A couple of times a week China is, one way or another, reducing their dollar position for minerals, materials and energy.
Sinopec completes China’s biggest foreign takeover
Updated: 2009-08-19 15:01
Sinopec Group said Tuesday it has completed its $7.5 billion acquisition of Addax Petroleum, obtaining new reserves in Africa and the Middle East in China’s biggest foreign corporate takeover to date.
State-owned Sinopec Group is the parent of Sinopec Corp., also known as China Petroleum & Chemical Corp., Asia’s biggest refiner by volume. It wants to expand its production capacity to profit from rising crude prices that have cost it billions of dollars in recent years due to government caps on retail fuel prices.
Jim Sinclair’s Commentary
Of all the problems so far, the failure of pension funds to meet their obligation will have the most negative impact on the social order.
CALIFORNIA PENSIONS HAVE BECOME THE STATE’S NEXT FISCAL CRISIS
Written by Chris H. Sieroty
August 20, 2009
At a time when the state government has reduced education spending, cut back services to the poor and implemented workplace furloughs to close a $24.6 billion deficit, California faces additional financial problems from its public pensions.
The nation’s largest pension fund, the California Public Employees’ Retirement System, or CalPERS, reported a record 23.4 percent drop in the value of its assets last year to $180.9 billion from $237.1 billion a year earlier.
Even before the recession, the annual taxpayer contribution to the fund increased from $4.2 billion in
2003-04 to $7.2 billion last fiscal year.
"Pensions are a major issue, because unfunded liabilities could bankrupt a number of cities and counties," Bob Stern, president of the Center for Governmental Studies in Los Angeles told PublicCEO.com.
"The recent rebound in the stock market has eased the pressure on pension funds. But pension funds will have to seek additional payments from cities and counties to cover unfunded liabilities as more employees reach retirement age."
Jim Sinclair’s Commentary
When the coalition of one finally leaves Iraq what will have been accomplished?
Not much.
Bombs Hurt Maliki Case That Iraq Can Guard Itself
By ROD NORDLAND
Published: August 20, 2009
BAGHDAD — In recent months, Prime Minister Nuri Kamal al-Maliki has sought to convince Iraq that it is finished with war. He ordered blast walls around Baghdad pulled down, including those near the Foreign and Finance Ministries. He has refused to ask the American military for help in any major way since Iraqi soldiers took full security responsibility in the cities on June 30.
Then two trucks drove into downtown Baghdad on Wednesday, detonating huge bombs that killed nearly 100 people and that gravely wounded Mr. Maliki’s case that Iraq is ready to defend itself without American help. The attacks also deepened a widespread dissatisfaction with Mr. Maliki, with some critics accusing him of polishing his political image as the man who restored security to Iraq at the expense of actual safety
Jim Sinclair’s Commentary
You have heard this here since the USDX was at 117. These fellows are extremely late comers.
Buffett, Pimco warn of greenback’s decline
Heavyweight investors point to unchecked U.S. government spending, massive debt sales as red flags
BOYD ERMAN
From Thursday’s Globe and Mail Last updated on Friday, Aug. 21, 2009 09:40AM EDT
Warren Buffett and Pacific Investment Management Co., two of the biggest forces in American investing, are joining the swelling chorus of concern that the U.S. dollar is doomed to long-term decline unless policy makers find a way to rein in government spending growth.
Mr. Buffett, in an op-ed piece in The New York Times, warns that unchecked spending and the massive debt sales necessary to finance it may result in inflation and "will certainly cause the purchasing power of the currency to melt. The dollar’s destiny lies with Congress."
Pimco, which runs the world’s largest bond fund, argues in a commentary published yesterday that the U.S. dollar is already losing credibility as a reserve currency, which signals a continuing decline for the greenback.
The argument is that with U.S. dollars flooding out of the Treasury, the supply will swamp demand and drive down the currency. Along with that, some believe that inflation will take off.
It’s a popular thesis among some more pessimistic economists such as Nouriel Roubini, and it’s a concern for big holders of U.S. Treasury bonds, such as China. At home in the United States, however, questioning the safety of the greenback has for many been taboo, almost unpatriotic.
Jim Sinclair’s Commentary
More ways for China to get rid of dollars and pounds.
Bank of China ‘Cherry Picks’ U.K. Mortgage Borrowers (Update1)
By Zijing Wu and Kevin Crowley
Aug. 20 (Bloomberg) — Bank of China Ltd., the nation’s third-largest commercial lender, will seek to “cherry-pick” prime borrowers as it expands into real-estate lending in the U.K., according to the head of the bank’s British retail unit.
“Before the financial crisis you didn’t have a choice, you couldn’t cherry-pick the good customers,” Xixu Sun, chief retail banking officer at Bank of China U.K. Ltd., said in an interview in London. “Now you have that choice, because there’s a drought in terms of mortgage loans provided by banks.”
The Chinese state-owned bank is looking to win so-called prime customers with good credit histories who are struggling to get mortgages from Britain’s traditional real estate lenders, Sun said. U.K. mortgage approvals plunged to about 48,000 in June, less than half the 108,000-a-month average between 2003 and 2007, according to Bank of England figures.
“There’s a gap, particularly for the high-end market,” said Jaap Meijer, a banking analyst at Evolution Securities Ltd. in London. “The big banks have been very restrictive on lending.”
The average U.K. house price dropped 11 percent to 191,423 pounds ($316,000) in the 12 months to June, the Department for Communities and Local Government said last week.
Jim Sinclair’s Commentary
This is a very good article for new readers.
Six Important Gold Price Indicators
August 20, 2009
Here are six things I’m personally keeping an eye on to gauge the direction of the price of gold:
1. COT report. This report shows that commercial traders — generally believed to be "smart money" traders involved in day-to-day operations of the commodity in question — are short gold. The commercial traders are increasingly short while others are increasingly long; in such a scenario, when the non-commercials run out of fuel in their trend, they will start liquidating, and the commercials can see this as an opportunity to add to their short positions and push the market further down.
Below is the chart that illustrates.
2. Consolidation on daily chart. Below is a daily chart. We see consolidation via a pennant formation — a formation that often precedes a sharp breakout. Accordingly, I think there could be a sharp breakout if the market can break above resistance at $980 or support near $925.
3. US banking system still under stress. US banks are still failing, and more may be on the way. Bank failures increase the need for safe havens, which gold, with its long history of serving as a stable monetary commodity, can provide.
4. The Federal Reserve is still aggressively monetizing. The Federal Reserve has stated they will continue to print money and buy assets through the end of October. Additional money creation without the creation of additional productivity stands to devalue the currency, and is the kind of event that can precipitate a run on a currency. Currency devaluation, particularly when it stems from monetary policy put forth by governmental/quasi-governmental agencies, is bullish for gold, as gold is regarded as a hedge against currency devaluation resulting from central banking policies.
5. Financial fraud rising. Courtesy of Jesse comes the chart below, which shows that financial fraud is rising in the US. Fraud weakens the US dollar and the political economy it stems from, and thus could be seen as bullish for gold.
6. Financial Fraud in Comex. Comex recently permitted gold futures contracts to be settled not only with physical delivery, but with delivery of shares of gold exchange-traded funds like GLD. GATA explains how this inflates the amount of paper gold, much of which may not be backed by real physical gold. This may result in a split in the gold market — prices for physical delivery and prices for paper gold.
Disclosure: Long physical and paper gold.
Jim Sinclair’s Commentary
MOPE is basically major smoke and mirrors.
This equity rally since April is built on smoke, mirrors and FASB’s collapse on ethics in accounting.
This is a 1932 repeat and as a repeat will sputter out in time.
Insurers’ Biggest Writedowns May Be Yet to Come: Jonathan Weil
Commentary by Jonathan Weil
Aug. 20 (Bloomberg) — How many legs would a calf have if we called its tail a leg?
Four, of course. Calling a tail a leg wouldn’t make it a leg, as Abraham Lincoln famously said.
Nor does calling an expense an asset make it an asset. This brings us to the odd accounting rules for the insurance industry, includingLincoln National Corp., which uses Honest Abe as its corporatemascot.
Look at the asset side of Lincoln National’s balance sheet, and you’ll see a $10.5 billion item called “deferred acquisition costs,” without which the company’s shareholder equity of $9.1 billion would disappear. The figure also is larger than the company’s stock-market value, now at $7 billion.
These costs are just that — costs. They include sales commissions and other expenses related to acquiring and renewing customers’ insurance-policy contracts. At most companies, such costs would have to be recorded as expenses when they are incurred, hitting earnings immediately.
Because it’s an insurance company selling policies that may last a long time, however, Lincoln is allowed to put them on its books as an asset and write them down slowly — over periods as long as 30 years in some cases — under a decades-old set of accounting rules written exclusively for the industry.
Jim Sinclair’s Commentary
Whatever derivatives do not do to the financial entities, bad business and litigation will.
Regardless, the banking share index is on a bull tear because right now FASB has allowed them to mark up their OTC derivatives to false levels.
The plan for private capital to buy toxic paper failed because the values they are being held at on the books of the Wall Street banks are nowhere near real value and therefore cannot be sold.
In New Phase of Crisis, Securities Sink Banks
AUGUST 21, 2009
By ROBIN SIDEL
U.S. banks have been dying at the fastest rate since 1992, mainly because of bad loans they made. Now the banking crisis is entering a new stage, as lenders succumb to large amounts of toxic loans and securities they bought from other banks.
Federal officials on Thursday were poised to seize Guaranty Financial Group Inc., in what would be the 10th-largest bank failure in U.S. history, and broker a sale of the Texas bank to Banco Bilbao Vizcaya Argentaria SA of Spain. Guaranty’s woes were caused by its investment portfolio, stuffed with deteriorating securities created from pools of mortgages originated by some of the nation’s worst lenders.
Texas-based Guaranty Financial Group was crippled by investing in securities issued by other lenders.
Guaranty owns roughly $3.5 billion of securities backed by adjustable-rate mortgages, with two-thirds of the loans in foreclosure-wracked California, Florida and Arizona, according to the company’s latest report. Delinquency rates on the holdings have soared as high as 40%, forcing write-downs last month that consumed all of the bank’s capital.
Guaranty is one of thousands of banks that invested in such securities, which were often highly rated but ultimately hinged on the health of the mortgage industry and financial institutions. "Under most scenarios, they were good and prudent investments — as long as we didn’t have a housing or banking crisis," says John Stein, president and chief operating officer at FSI Group LLC, a Cincinnati company that invests in financial institutions.
