Jim Sinclair’s Commentary
Wasn’t it Chairman Greenspan that praised OTC derivatives in public testimony as transmuting risk from the few to the many when in fact it turned out to be from the few to the fewer? He also testified that regulation of OTC derivatives was not required.
The Fed Can’t Monitor ‘Systemic Risk’
That’s like asking a thief to police himself.
By PETER J. WALLISON
Using the financial crisis as a pretext, the Obama administration is determined to enact massive financial regulatory reforms this year. But the centerpiece of its proposal—putting the Fed in charge of regulating or monitoring systemic risk—is a serious error.
The problem is the Fed itself can create systemic risk. Many scholars, for example, have argued that by keeping interest rates too low for too long the Fed created the housing bubble that gave us the current mortgage meltdown, financial crisis and recession.
Regardless of whether one believes this analysis, it is not difficult to see that a Fed focused on preventing deflation in the wake of the dot-com bubble’s collapse in the early 2000s might ignore the sharp rise in housing prices that later gave us a bubble.
There is also the so-called Greenspan put. That’s a term that refers to investors taking greater risks than they otherwise would because they believed the Fed would protect them by flooding the financial system with liquidity in the event of a downturn. If there really was a Greenspan put, it has now been supplanted by a "Bernanke put."
These puts may or may not be real, but there is no doubt that the Fed has the power to create incentives for greater risk taking. In other words, simply by doing its job to stabilize the economy, the Fed can create the risk-taking mindset that many blame for the current crisis.
Jim Sinclair’s Commentary
If these charges actually reach the dock, they are in fact charges against Paulson and the Federal Reserve Chairman in the form of Merrill executives.
New York Nears Charges on Merrill Deal
BY DAN FITZPATRICK
New York state’s attorney general, Andrew Cuomo, moved closer Tuesday to filing securities-fraud charges against Bank of America Corp. executives, citing at least four "failures" to tell shareholders material information related to the bank’s takeover of Merrill Lynch & Co.
The warning came in a Tuesday letter to the Charlotte, N.C., bank from David Markowitz, the chief of Mr. Cuomo’s investor-protection bureau, who demanded more information about conversations deemed privileged by Bank of America officials. Mr. Markowitz accused the bank of "indiscriminate …
Jim Sinclair’s Commentary
More and more people are realizing that the entire economic problem the planet has was and is still being caused by the manufacture and distribution of OTC derivatives.
The Chinese just said NO to this crack cocaine of Western finance.
Please read the following.
“Systemic Risk Laundering” — Financial Crisis Root Causes — Part II
Submitted by Scott Cleland on Tue, 2009-09-08 09:27
How could American taxpayers get stuck with a multi-trillion dollar tab that they weren’t even aware that they were running up? How could that huge tab still be allowed to run up unchecked today? For the Financial Crisis Inquiry Commission, the sad answer is one of the biggest root causes of last fall’s devastating financial crisis and one of the biggest continuing systemic risks to the financial system and the economic recovery.
A decade ago, in what may prove to be the most expensive bipartisan legislative mistake in U.S. history, a bipartisan policy became law that effectively ensured that no Federal regulator had oversight or enforcement jurisdiction over derivative financial instruments. The Commodity Futures Modernization Act of 2000 (CFMA) created “legal certainty for excluded derivative transactions.” That law allowed a shadow derivative overlay system to be built literally on top of the public financial system, with none of the inherent accountability of the underlying financial system. In other words, a deliberate bipartisan U.S. government policy change a decade ago unwittingly created an unaccountable “black hole” market that sucked enormous value out of public markets, (Bear Stearns, Lehman, AIG, Fannie, Freddie, securitized sub-prime mortgages, etc.) while laundering the risk to the U.S. taxpayer.
Simply, in fostering an unaccountable marketplace that derived all its real value from public markets, the Government fostered systemic risk laundering from the unaccountable to the accountable, which ultimately left the U.S. taxpayer holding the bag. More specifically, with no accountability to fairly represent or disclose risk, too many did not. Too many figured out that they could launder huge financial risk with impunity, because most public investors assumed someone somewhere was ensuring that these derivative instruments were fairly represented, disclosed, and accountable. Oops!
The origin of this monumental bipartisan blunder was a shockingly poor understanding of what free markets fundamentally require to work efficiently, i.e. confidence in: the enforceability of property rights and contracts; the competent policing against fraud and bad actors; and the free flow of necessary market information. For all practical purposes, the offending CFMA provision perversely redefined the word “free” in free-market to mean “unaccountable.” More specifically, the provision also systematically abandoned the implicit social contract that underlies the American free market system — “with freedom comes responsibility” — and re-interpreted “free” to mean freedom from accountability. Freedom from accountability is heaven on earth for fraudsters and bad actors. A decade of widespread freedom from accountability disgorged the totally dysfunctional marketplace of last year, which in turn required the Government to flood the market with trillions in capital, bailouts and guarantees to mop up this historic mess of systemically laundered risk.
Jim Sinclair’s Commentary
Financial rescue plans declared successful by G20. More international cooperation to be had says Fed Bank President, Rube Goldberg.
All hail the Federal Reserve because the Federal Reserve needs hailing.
![clip_image001[8]](http://jsmineset.com/wp-content/uploads/2009/09/clip_image0018.jpg "clip_image001[8]")
Jim Sinclair’s Commentary
Why did Lehman Brothers executives say “Impacts all financial institutions”? The answer is the bankruptcy impact on the international chain of OTC derivatives.
Please don’t say that the people below did not understands this.
Calling these people stupid is in itself world class stupid. I wish to hell that I did not understand this stuff. Sitting at the local watering hole banging down a few beers and a shot or two while watching 24 would be much easier.
What the hell good is all this knowledge if you can’t change a damn thing?
Missing Lehman Lesson of Shakeout Means Too Big Banks May Fail
By Bob Ivry, Christine Harper and Mark Pittman
Sept. 8 (Bloomberg) — The warning was ominous: “Massive global wealth destruction.”
That’s what Lehman Brothers Holdings Inc. executives predicted before they filed the biggest bankruptcy in U.S. history. “Impacts all financial institutions,” read one bullet point in a confidential memo prepared for government officials obtained by Bloomberg News. “Retail investors/retirees assets are devastated.”
The message didn’t get through. Two dozen of the world’s most powerful bankers, brought together by Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Bank of New York President Timothy F. Geithner the weekend of Sept. 13, 2008, to devise a rescue plan for Lehman, were too busy saving themselves to see the larger threat
“The discussion among the CEOs was ‘How do we prevent the next firm from going under?’” former Merrill Lynch & Co. Chief Executive Officer John A. Thain, who cut a deal to sell his company that weekend, said in an interview. “There should have been much more discussion about the impact directly on the markets if Lehman went bankrupt.”
While everyone assembled at the New York Fed was aware that unbridled subprime-mortgage lending and the packaging of such inferior loans into investment vehicles such as collateralized- debt obligations had pushed the financial system to the breaking point, what the bankers missed almost destroyed them — and the rest of the global economy.
Jim Sinclair’s Commentary
What a screwing these guys are going to get. You think they might have learned.
Advantage, my ass. Simply mine lower grades, you meat heads.
Sumitomo Metal Mining Makes Hedge Deals For Gold Output
TOKYO (Dow Jones)–Sumitomo Metal Mining Co. Ltd. (5713.TO) said Tuesday it
has made hedge trading deals for as long as five years for its gold output from
two mines to take advantage of recent high gold prices.
The Japanese nonferrous metal supplier said it has contracted to sell 48% of the 7.5 tons a year output from its mine in Kagoshima Prefecture, southern Japan at $700-$1,700 per troy ounce through June 2012.
At its Pogo mine in Alaska, Sumitomo contracted to sell 28% of a set amount of its take at $750-$1,850 per troy ounce and the remaining 72% at $750-$1,700 through December 2014.
Jim Sinclair’s Commentary
Now here is a MOPE masterpiece. Going forward, sure.
Going back there are a millions times this number that they can’t do a damn thing about.
NY Fed: Banks To Clear Over 90% Of Swap Trades
September 08, 2009: 12:01 PM ET
By Jacob Bunge
CHICAGO -(Dow Jones)- Fifteen dealer banks on Tuesday told the Federal Reserve Bank of New York that they plan to centrally clear more than 90% of their interest rate and credit derivatives trades by the end of the year.
Banks will also begin submitting monthly reports to the New York Fed detailing new transactions and outstanding trades in over-the-counter markets, representatives of the so-called G15 firms wrote in a Tuesday letter.
"These targets will push major dealers to accelerate their progress," New York Fed President William Dudley said. "We also expect them to work with central counterparties to rapidly expand the universe of eligible products and to continue to increase clearing levels beyond these initial targets."
Members of the G15 banks include Goldman Sachs & Co. (GS), JP Morgan Chase ( JPM), Credit Suisse (CS) and Deutsche Bank (DB1.XE). Clearinghouse operators are also working to include buy-side market participants like hedge funds.
Jim Sinclair’s Commentary
The maxim of MOPE is never to disturb the social order.
Well, here is something that will launch the social order into orbit.
Pension fund deficit widens again
The state of UK defined-benefit pension funds started to worsen again in August, according to the Pension Protection Fund (PPF).
The shortfall in the 7,400 defined- benefit schemes, including final-salary pensions, widened from £158.1bn at the end of July to £173.2bn a month later.
The level has fluctuated in recent months but remains considerably worse than a year earlier.
Many employers have closed final-salary schemes because of funding shortages.
Initially, these schemes were closed to new members, but more recently existing members have been told that their retirement savings will be frozen at the current level.
The latest to join the list of businesses doing so are construction and civil engineering company Costain, and Whitbread, which owns Costa Coffee and Premier Inns.
Jim Sinclair’s Commentary
Don’t buy into the MOPE concept for one moment. China has a damn good reason for their actions. That you can be sure of.
These OTC derivative dealers have broken every financial system on the planet and simply will not stop.
When COT or OTC derivative dealers believe they can muscle around major Asian countries they are in for more trouble than they can believe.
Nick Deak cost the Chinese a lot of money in the late 70s. He found out.
China backs efforts to break oil contracts
By Robert Cookson and Xi Chen in Hong Kong
Published: September 7 2009 18:24 | Last updated: September 7 2009 18:24
China delivered a blow to some of the world’s biggest investment banks on Monday as it declared its support for legal efforts by some state-owned companies that want to break loss-making oil derivatives contracts with foreign institutions.
The state-owned Assets Supervision and Administration Commission of the State Council said it was investigating a number of derivatives deals and would help companies find ways to “minimise losses”.
The move is the latest by Beijing to clamp down on the over-the-counter derivatives market after a number of state companies made disastrous bets on commodity prices and foreign exchange movements, losing billions of dollars.
But it will be greeted with dismay by foreign financial institutions, already reeling from a July decision by China’s banking regulator that sought to prevent state-owned enterprises from accessing the overseas derivatives market through domestic intermediaries.
Andy Xie, an independent economist based in Shanghai, said the moves “pretty much kill this business,” adding that the lion’s share of profits enjoyed by US and European banks in China came from derivatives deals with state-owned companies.
Jim Sinclair’s Commentary
Numbers to remember as they all will be surpassed.
Today’s inflation dollar adjusted battle is but at $500 gold of the 70s.
Thousand Dollar Gold
Published: Tuesday, 8 Sep 2009 | 12:12 PM ET
By: Ariel Nelson, Giovanny Moreano
With gold futures rallying above the $1,000-psychological mark this morning, here is a look at how bullion has traded in the past thirty years:
Intraday Levels
Comex gold for December delivery hit an intraday high of $1,009.7 per troy ounce this morning, its highest level since 3/18/2008
The highest intraday price for gold was reached on 3/17/08, when gold futures traded as high as $1,033.9
Gold future prices have crossed above the $1,000-mark only 6 times in their trading history (including today)
Intraday Levels
Comex gold futures have closed above $1,000 an ounce only 3 times since they started trading
The highest close for gold on its trading history was reached on 3/18/2008, when it closed at $1,004.3
In 2009, the highest close for gold was reached on 2/20/2009, when gold futures closed at $1,002.2
The lowest close for gold in 2009 was reached on 1/15/2009, when gold futures closed at $807.3
Since its lowest close this year, the price of gold is up about 24%
Year-to-date, gold prices are up nearly 13%
Jim Sinclair’s Commentary
OK, I am human. It bothers me that JSMineset gets no credit from these copy cats.
When $1650 happens this bunch will all be saying on F-TV, "As I told you…" Of course they all fudge it $50 one way or another.
Next they will be predicting on or before January 16th, 2011, a two day fudge.
Hell, they even got it for free as these cheapskates Simon Lagres would not pay for one compendium to help defray the huge cost of the site. I pay for them to steal my stuff!
Hedge fund eyes gold at $1,600, sells equities
Tue Sep 8, 2009 12:52pm EDT
By Laurence Fletcher
LONDON (Reuters) – The price of gold could rise as high as $1,600 an ounce as investors opt for assets with lasting value rather than volatile currencies, says one hedge fund manager who has increased his exposure to the precious metal.
"All the fundamentals are in place. If it breaks last year’s high it can go to $1,200 to $1,400 quite quickly," Pedro de Noronha, managing partner of Noster Capital told Reuters in an interview on Tuesday.
Spot gold rose through the psychologically significant barrier of $1,000 an ounce on Tuesday — its highest since March 2008 when it hit a record $1,030.80.
The precious metal was helped by a weaker dollar and expectations that government measures to revive economic growth will boost demand for basic resources.
"If you adjust the gold price for inflation, to retest the early 80s highs gold would need to be at $1,600. I don’t think this figure is inconceivable, especially given the fundamentals that are behind this move in gold," de Noronha said.
Jim Sinclair’s Commentary
There is no more dangerous geopolitical problem on the planet than Pakistan.
Now that the surge photo-op is over, the Taliban will be retuning while the Pak nuclear arsenal is made more deadly.
Pakistan’s Dr. Boom is out so he may be selling nukes on the internet AGAIN.
Pakistan Seeks Additional Nuclear-Weapon Capabilities, Analysts Assert
Tuesday, Sept. 8, 2009
Pakistan is seeking to build better nuclear weapons and developing new missiles suitable for carrying nuclear warheads, Robert Norris of the Natural Resources Defense Council and Hans Kristensen of the Federation of American Scientists wrote in the latest edition of the Bulletin of the Atomic Scientists (see GSN, May 29).
Islamabad continues to build new nuclear devices, expanding its stockpile to between 70 and 90 warheads, the analysts wrote in the Bulletin’s "Nuclear Notebook." As of early last year, the nation had generated 2,000 kilograms of highly enriched uranium and 90 kilograms of weapon-grade plutonium; the supply could power between 80 and 130 warheads, but the South Asian state is unlikely to have weaponized all of its fissile material, says the report.
"Following the example of other nations that have developed nuclear weapons, Pakistan is improving its weapon designs, moving beyond its first-generation nuclear weapons that relied on HEU," the assessment states.
A new chemical separation site and two new plutonium production reactors, still unfinished, would "provide the Pakistani military with several options: fabricating weapons that use plutonium cores; mixing plutonium with HEU to make composite cores; and/or using tritium to ‘boost’ warheads’ yield," the report states.
Jim Sinclair’s Commentary
Let the gold banks play their game with the gold price at $1000.
The price of gold is going to $1224 and then $1650 before it is off to Alf’s numbers.
China Admits Gold’s Monetary Role: Time to Buy
September 08, 2009
Kristjan Velbri
From Dr. Zhou Xiaochuan, Governor of the People’s Bank of China, writing in The Alchemist (issue 36, 2004):
Gold is a commodity that combines the attributes of a currency, financial commodity and general commodity. Despite the declining function of gold as currency in the world, the activeness and development of investment activities with gold as the target indicates that gold still has a strong financial nature and remains an indispensable investment tool. In major financial centers in the world, the gold market, together with the money market, securities market and FX market, constitutes the main part of the financial market.
Fresh winds of optimism for gold and silver investors are blowing from China. For about a month now, the Chinese state television has been openly promoting gold and silver as an investment and a store of wealth. Not long ago, the Chinese announced that they had been “secretly” buying gold – starting from 2003 they had bought over 600 metric tons of gold, bringing the gold to cash reserve ratio from 1.3% to 1.7%.
Of course, the Chinese are awfully good at smoke and mirrors and so it is not clear whether the numbers that were published back in spring are the real numbers. The real gold purchases could in theory be much greater than the Chinese officials are publicly admitting, especially as the free export and import of gold (and silver) is not allowed in China. There is no way to confirm the numbers because the Chinese central bank has been buying locally mined gold only.
What is interesting is that China is the biggest gold miner in the world, overtaking South Africa who was the world leader for over a century as China’s gold production reached 270 (metric) tonnes in 2007. As the export of gold from China is very difficult and the industrial demand for gold very limited inside China, the most likely buyers are the People’s Bank of China, Chinese sovereign wealth funds and to a small degree the Chinese public.
Jim Sinclair’s Commentary
With the way these guys have screwed everyone this seems only logical
Spending on personal security perk for CEOs is skyrocketing
By Del Jones, USA TODAY
Companies have been slashing almost every cost imaginable to survive the recession, yet they are spending more than ever to calm CEOs who fear for their personal safety.
Starbucks, which has laid off workers, closed stores and switched from whole to 2% milk to save pennies a gallon, bumped its spending to $511,079 last year on the personal and home security of CEO Howard Schultz. FedEx, which quit matching employee 401(k) contributions, spent $595,875 on the security of CEO Fred Smith. Walt Disney spent $645,368 for CEO Robert Iger; Occidental Petroleum spent $575,407 for Ray Irani; and McKesson spent $401,706 for John Hammergren.
Be it paranoia or prudence, corporate spending on CEO safekeeping is escalating in the face of painful cutbacks, and not by a little. The median spending on personal and home security for CEOs at the 100 largest publicly traded companies was $65,348 in 2008, up 123% from $29,291 in 2007, according to executive compensation research firm Equilar. Ten companies alone spent a total of $4.6 million on CEO security in 2008, 40% more than the 10 biggest spenders of 2007.
Jim Sinclair’s Commentary
Always trust the government to run businesses well.
Jim Sinclair’s Commentary
My beloved son in law, Giancarlo, the son in law you pray for but rarely get, has made a keen political observation.
Of course, he is a traditional Italian gentleman so there might be some subjective prejudice but the conclusion here seems quite valid to me.
"For the American everything is business, he looks far and his attention is not distracted.
The Canadian is a little “distant” and a little naïve as well…
The Italian and the French… they are looking only at her, well you guess!
I must say Berlusconi got a better jacket…"
![clip_image001[6]](http://jsmineset.com/wp-content/uploads/2009/09/clip_image00161.jpg "clip_image001[6]")
Jim Sinclair’s Commentary
The gold banks can play any game they want, but no force on the planet can make a silk purse out of a pigs ear, aka the US Dollar.
The following is courtesy of CIGA "The Gordon"
Jim Sinclair’s Commentary
There is no way to stop the manufacturers and distributors of these toxic items but to say they are wagers, non enforceable and we will not allow our country to be decimated like you have decimated every other financial system on the planet.
Prior to Lehman this was an option that would have caused trouble, but only a fraction of the trouble still to come.
China is going to do it. Your insurance is only one thing, and that is Gold!
China’s SOEs May Terminate Commodities Contracts
08-28 22:37 Caijing
Any such move would be a major blow to investment banks which service commodities hedging operations for Chinese SOEs on the international market.
(Caijing.com.cn) China’s state-owned enterprises may unilaterally terminate commodities contracts as they try to cut massive losses from financial derivatives, an industry source told Caijing on August 28.
According to the source, China’s State-owned Assets Supervision and Administration Commission (SASAC) has sent notice to six foreign financial institutions informing them that several state-owned enterprise will reserve the right to default on commodities contracts signed with those institutions.
Keith Noyes, an official with the International Swaps and Derivatives Association, a trade organization, confirmed that he is aware of the matter, but provided no further comment.
Foreign brokerages usually work through their Hong Kong operations to sign over-the-counter derivative hedging contracts, according to an investment banker whose firm is involved in the business. Hong Kong and Singapore usually serve as venues for arbitration over such transactions.
Jim Sinclair’s Commentary
It has been hard to understand how any stockholder can simply sit by while these things happen
Commerzbank Sued for $49 Million by 72 Bankers Over Bonuses
By Lindsay Fortado and Jann Bettinga
Sept. 8 (Bloomberg) — Seventy-two former Dresdner Kleinwort bankers sued Commerzbank AG claiming about 34 million euros ($49 million) in unpaid bonuses and interest.
The former bankers at Dresdner Kleinwort, the German investment bank that was taken over by Commerzbank in January, filed the lawsuit in London’s High Court today. The suit claims the bankers, some of which still work for Frankfurt-based Commerzbank, were paid a tenth of the amount they’re owed in bonuses under a contract with Dresdner Kleinwort.
Commerzbank, which has tapped Germany for 18.2 billion euros of capital, withheld bonuses and severance pay for Dresdner executives after taking control of Dresdner Kleinwort in January. More than a dozen lawsuits have been filed against the bank in London and Frankfurt over unpaid bonus and severance.
“Dresdner Bank was fully entitled to take the actions it did in relation to Dresdner Kleinwort employees’ discretionary bonuses in light of the marked deterioration in the investment bank’s performance in the months of November and December 2008,” Commerzbank said in an e-mailed statement. “The bank will be defending these claims vigorously in the courts.”
Eight of the bankers claim to be owed more than one million euros for work they did last year, according to the lawsuit. The largest individual claim was by Jonathan Powell, seeking 1.67 million euros.
Jim Sinclair’s Commentary
Going forward CDS can be standardized and cleared with improved but not fool proof financial protection. Going backwards on the well over one Quadrillion OTC derivatives, it is hopeless.
Hopeless occurred the day Lehman got flushed.
CDS Dealers Agree to Clear 80% of Eligible Trades in October
By Shannon D. Harrington
Sept. 8 (Bloomberg) — Wall Street banks including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Barclays Plc committed to process 80 percent of all eligible credit-default-swap trades starting in October through clearinghouses designed to prevent a chain of dealer defaults.
The banks also agreed to clear 70 percent of new eligible interest-rate derivatives trades starting in December, according to a letter to regulators that was signed by 15 firms and released today by the Federal Reserve Bank of New York.
Regulators have been pressing for much of the existing $592 trillion market in over-the-counter derivatives trades to be moved to clearinghouses to reduce risk to the financial system.
The push by the Fed and other regulators for greater regulation of the OTC markets follows the collapse last September of Lehman Brothers Holdings Inc., one of the largest credit-swaps dealers, and the U.S. rescue of American International Group Inc. after it made bad bets on mortgage- linked securities using credit-default swaps. Both are based in New York.
Jim Sinclair’s Commentary
These people are running GM? Here comes the Volt!
Post office closures threat adds to property market woe
By Alan Rappeport in New York
Published: September 8 2009 03:00 | Last updated: September 8 2009 03:00
The possible closing of more than 400 post offices across the US in an effort to cut costs could further dent the struggling commercial property market as rising retail vacancies continue to weigh on prices.
The US postal service has said it is placing 413 of its 37,000 retail locations under review for "consolidation" as it faces a record loss of $6bn (£3.7bn) this year. The mail carrier has seen a dramatic drop in package volume owing to cost-conscious Americans cutting back in favour of cheap alternatives such as e-mail.
"At the end of the day, it’s just more retail space that’s going to be available that’s going to put pressure on already embattled landlords," said Victor Calanog, director of research at Reis, property research company.
The US postal service operates the biggest retail network in the country, but now faces an overhang of excess capacity because mail volume is on pace to be down by 10 to 12 per cent this year. The US government accountability office warned in May that the postal service, which has a $1.5bn cash shortfall, should "take action now rather than hoping that mail volume will revive sufficiently when the economy recovers".
Greg Frey, a spokesman for the US postal service, said that closing offices was the only choice with revenues projected to be down by more than 7 per cent this year. Of the properties facing closure, the US postal service rents about half of them and owns the rest, meaning that it will be forced to break leases or sell space while the commercial property market is plunging.
Jim Sinclair’s Commentary
Now tell me if my statement of a global desire for an alternative Super Sovereign Currency was correct or over the top.
Keep in mind an alternative is not a replacement, but seriously injures dollar momentum buying resulting today in lower prices.
UN wants new global currency to replace dollar
The dollar should be replaced with a global currency, the United Nations has said, proposing the biggest overhaul of the world’s monetary system since the Second World War.
By Edmund Conway, Economics Editor
Published: 6:45PM BST 07 Sep 2009
In a radical report, the UN Conference on Trade and Development (UNCTAD) has said the system of currencies and capital rules which binds the world economy is not working properly, and was largely responsible for the financial and economic crises.
It added that the present system, under which the dollar acts as the world’s reserve currency , should be subject to a wholesale reconsideration.
Although a number of countries, including China and Russia, have suggested replacing the dollar as the world’s reserve currency, the UNCTAD report is the first time a major multinational institution has posited such a suggestion.
In essence, the report calls for a new Bretton Woods-style system of managed international exchange rates, meaning central banks would be forced to intervene and either support or push down their currencies depending on how the rest of the world economy is behaving.
Jim Sinclair’s Commentary
As the understanding grows that all of this, without exception, takes its birth in the massive OTC pile of junk with no practical solution post Lehman, gold becomes even more popular.
I can take comfort that I have been a good teacher.
Gold Is Still the Opportunity of a Lifetime
September 07, 2009
Andy Sutton
Last October was a pretty brutal time to be in the prognostication business. I had just called Gold the opportunity of a lifetime at the end of August at a price of around $800/ounce. By the time late October came around, the price had fallen to around $725 and the catcalls had begun in earnest. The Keynesian Kakistocracy was out in full force, hurling insults so rich and humorous that I felt compelled to write some of them down. Now a year later it is time to do another quick review and probably set myself up for yet another barrage of hate mail if the price of Gold doesn’t immediately set a course for Mars.
Yes, we are one year removed from that column and Gold is up 25% in dollar terms at nearly $1000/ounce. Detractors will quickly point out Gold’s inability to land and stick above the $1000 level. In return, I will point at the Dollar’s failed rally to 90 as measured by the USDX. Detractors will point to a lack of interest and dividends from investing in Gold. I will point out that Gold is not an investment; it is money. However, for those who insist on comparing Gold to stocks, I will point out that in the year since the last article, Gold is up 25% while the Dow Jones Industrials are down 19%. Detractors will point out the new bull market in stocks. I’ll counter with the fact that stocks are merely in the middle of a countertrend rally within a bear market while Gold’s correction last year was a countertrend move within a bull market. Detractors will point to the save-haven status of the Dollar during times of economic distress. I’ll counter with the fact that Congress has ensured that the Dollar will die of nearly two trillion cuts – in FY 2009 alone. Must we really continue this?
So on the anniversary of the beginning of the first in extremis phase of the financial crisis, we’re going to look at two of the many developing situations that should give us pause when considering the stability of our financial structures despite all the positive rhetoric and hopefully compel us to consider how to adequately protect ourselves.
China’s stop-loss
Last week, China released some rather earthshaking news that was barely reported by the diligent media here in the US. And where it was reported, the significance was completely glossed over or even ignored. The Chinese Government gave a directive to its state banks to cut their losses on commodity related derivatives, many of which are tied to NY and London banks. In doing so, the Chinese government is in essence saying it no longer respects the validity of these specific performance contracts, pointing out that without performance, there is nothing special about the contracts. This is tantamount to a shot across the bow. The commodities portion of the total notional value of all OTC derivatives as of December 2008 is rather small at .75% of the total. Telling Wall Street to take a long walk off a short pier in this instance will probably not destroy the financial system in and of itself, but it will certainly give the bailout boys a hint of what could happen if the Chinese et al (think BRIC) start backing out of other more important areas such as interest rate swaps which were nearly 55% of the total notional value. (Data courtesy of BIS)
Jim Sinclair’s Commentary
All events of hyperinflation have been the product of a loss of confidence in the currency in question.
The US dollar exists as a functional entity backed by confidence.
Nobody Liking Dollar Deficits Makes Rogoff Favorite (Update1)
By Ye Xie and Bo Nielsen
Sept. 8 (Bloomberg) — For the first time in at least two years, deficits are starting to matter to currency investors, and that may be bad news for the dollar.
Jim Sinclair’s Commentary
Almost every day the Chinese are buying metals, materials and energy utilizing US dollars.
Where are all the talking heads today yelling that China is dollar bound?
Silly pinheads.
Chinese Firm Offers to Buy Australia’s Energy Metals
By ROSS KELLY
SYDNEY — China Guangdong Nuclear Power Holding Co., or CGNPH, Tuesday offered 83.6 million Australian dollars (US$71.6 million) for control of Energy Metals Ltd., adding to a wave of Chinese investment in Australia’s natural resources.
State-owned CGNPH’s offer to buy 70% of the operator of the proposed Bigrlyi uranium project in Australia’s Northern Territory also signals China’s first significant corporate move into one of the world’s biggest uranium producing nations.
The offer comes amid a low point in relations between China and Australia following the detainment last month of four employees of Anglo-Australian mining giant Rio Tinto Ltd., including Australian citizen Stern Hu, on charges of bribery and infringing on state secrets. It also comes as disquiet grows among some politicians and commentators about the amount of Chinese investment in Australia’s mining sector.
Also Tuesday, China Railways Materials Commercial Corp. proposed to take substantial stakes of around 12% in two Australian iron ore juniors, United Minerals Ltd. and FerrAus Ltd.
Jim Sinclair’s Commentary
More Labor Day news.
Job outlook hits worst-ever level
Employers’ hiring plans at lowest point in Manpower survey’s history
Sep 8, 2009, 12:01 a.m. EST
By Andrea Coombes, MarketWatch
SAN FRANCISCO (MarketWatch) — Employers’ hiring plans for the upcoming fourth quarter dropped to their lowest level in the history of Manpower’s Employment Outlook Survey, which started in 1962.
A net -3% of employers said they’ll hire in the fourth quarter, down from -2% in the third quarter, on a seasonally adjusted basis, according to the Milwaukee-based firm’s survey of more than 28,000 employers. Before this year, the survey’s previous low point was a net 1% hiring outlook for the third quarter of 1982.
A year ago, a seasonally adjusted net 9% of firms said they would hire in the fourth quarter. The Manpower survey measures the percentage of firms planning to hire minus those intending layoffs. Manpower doesn’t measure the number of jobs. The survey’s margin of error is +/- 0.49%.
There was one positive sign in the survey: 69% of employers said they planned no change in their hiring plans, up from 67% in the third quarter and 59% in the fourth quarter a year ago (those figures are not seasonally adjusted).
That’s "a very high number for our outlook survey," said Jonas Prising, president of the Americas for Manpower. That figure generally hovers at 55% or 56% in a strong economy, he said, noting that the higher figure currently signifies a high degree of stability, and "that is a precursor to growth, he said.
