Dear CIGAs,
The way it used to be.
The way it ought to be.
Win with grace and lose with honor.
Your word was your bond in the 1950s Wall Street.
Now it is the cesspool of the world.
Please play this through to the end.
Jim Sinclair’s Commentary
This story for those who understand reveals much of the money flow to entities, then to the winner on the derivative with ownership of the worthless loss side still residual in the system.
New York Fed’s Secret Choice to Pay for Swaps Hits Taxpayers
2009-10-27 04:02:00.0 GMT
By Richard Teitelbaum and Hugh Son
Oct. 27 (Bloomberg) — In the months leading up to the September 2008 collapse of giant insurer American International Group Inc., Elias Habayeb and his colleagues worked nights and weekends negotiating with banks that had bought $62 billion of credit-default swaps from AIG, according to a person who has worked with Habayeb.
Habayeb, 37, was chief financial officer for the AIG division that oversaw AIG Financial Products, the unit that had sold the swaps to the banks. One of his goals was to persuade the banks to accept discounts of as much as 40 cents on the dollar, according to people familiar with the matter.
Among AIG’s bank counterparties were New York-based Goldman Sachs Group Inc. and Merrill Lynch & Co., Paris-based Societe Generale SA and Frankfurt-based Deutsche Bank AG.
By Sept. 16, 2008, AIG, once the world’s largest insurer, was running out of cash, and the U.S. government stepped in with a rescue plan. The Federal Reserve Bank of New York, the regional Fed office with special responsibility for Wall Street, opened an $85 billion credit line for New York-based AIG. That bought it 77.9 percent of AIG and effective control of the insurer.
The government’s commitment to AIG through credit facilities and investments would eventually add up to $182.3 billion.
Beginning late in the week of Nov. 3, the New York Fed, led by President Timothy Geithner, took over negotiations with the banks from AIG, together with the Treasury Department and Chairman Ben S. Bernanke’s Federal Reserve. Geithner’s team circulated a draft term sheet outlining how the New York Fed wanted to deal with the swaps — insurance-like contracts that backed soured collateralized-debt obligations.
Subprime Mortgages
CDOs are bundles of debt including subprime mortgages and corporate loans sold to investors by banks.
Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public.
The New York Fed’s decision to pay the banks in full cost AIG — and thus American taxpayers — at least $13 billion. That’s 40 percent of the $32.5 billion AIG paid to retire the swaps. Under the agreement, the government and its taxpayers became owners of the dubious CDOs, whose face value was $62 billion and for which AIG paid the market price of $29.6 billion. The CDOs were shunted into a Fed-run entity called Maiden Lane III.
Habayeb, who left AIG in May, did not return phone calls and an e-mail.
Jim Sinclair’s Commentary
Having reviewed the Bloomberg article on the flow of funds in the AIG situation, consider this article as it equally applies to US banks.
Banks ‘are a threat to economic recovery’
By SAM FLEMING
Last updated at 8:45 AM on 27th October 2009
Britain’s dysfunctional banking system could condemn the country to a stillborn economic recovery, a Bank of England expert warned last night.
Adam Posen called on ministers to break up outsized banks and encourage healthy new entrants into the sector to secure a sustainable rebound.
He said the financial system was in the hands of a few big players, who deny businesses credit while engaging in unproductive speculation.
There were ‘uncomfortable parallels’ with Japan, which has suffered nearly two decades of stagnation.
The monetary policy committee member’s speech echoes a demand from Shadow Chancellor George Osborne yesterday for a competition inquirty into banking.
Last week, Bank Governor Mervyn King said firms such as Barclays and Royal Bank of Scotland should be broken up into retail wings and casino-style investment operations.
Mr Posen’s words will further embarrass Gordon Brown, who acted as midwife to the controversial merger between Lloyds and Halifax Bank of Scotland last year.
Yesterday competition between lenders was reduced again when Barclays said it would take over insurer Standard Life’s retail bank in a £226million deal.
Jim Sinclair’s Commentary
Yra Harris, my former partner, speaks on the improbability that the Fed can ease up on QE for any meaningful period without popping the entire balloon resulting on another credit market seize up.
Yra also touches nicely on the political reality of this talk, in my opinion by the Fed, to please the Chinese before the deadline second week of November 2009.
Look for talk at the upcoming G20 concerning a Super Sovereign Currency with the US Treasury modestly in support while also seeking to placate the Chinese to buy more time.
I believe it will all be talk. This is what my countdown is all about.
As a note, Yra has not permitted me to give his coordinates out.
Watch out now, take care, beware – as sang by Leon Russell.
The fed is so screwed. Somebody wake them up.
Why do we say that?
For the last couple of days we have be warning to watch the long end of the Treasury market as the Fed buying program that was part of the quantitative ease program is to expire on Friday, October 30th.
We didn’t know the ramifications of this roll down but it seems the market believes there will be a lot less liquidity available and this is causing some large carry trade risk positions to be taken off the table.
Will this matter in the long term? Not one bit as the mortgage backed security market has been extended further out until March 31st, 2010. Ample liquidity will still be there a la quantitative ease but the short term fear of lack of treasury buying has spooked the market.
We advise checking the technicals to find where the long term support is for the tens and thirties and testing to see if support holds; for with the deflation side of the equation in play debt buyers show up to lock in some higher yields so it will be a matter of where and that is a question for the technicians.
The problem for the Fed is that without Fed buying and huge supply coming to the markets the sellers of bond futures are now in control.
This is a product of a Fed totally immersed in flawed economic models and no sense of how markets really work.
The market will punish the Fed as there will be sellers every time the market rallies, calling to question the huge amount of debt being issued to finance the massive fiscal stimulus.
We believe that this is pushing risk off the table as the market adjusts to this fact.
How far will this de-leveraging go? I don’t know but it will not be anything that took place a year and half ago. This will be rather short lived and the markets will then take the administration to task for flawed policies.
Throw in the Congressional election cycle with a high unemployment rate and you have a toxic witches brew.
Is the dollar stronger because ten year yields have gone from 3.2% to 3.7%? Maybe, but the implications of that are more negative than positive.
Rising long rates with less liquidity from the end of QE will not be supportive of any growth story and then throw in a few more CAPMARKS and medium bank closures and the credit markets will again seize up.
Nothing pretty here but respect the action to avoid pain. Look for good levels to enter markets that have corrected to long term support levels.
Without a continued program of aggressive reverse repos we just don’t believe we have seen a game changer.
Pay attention and look to technicals to find levels that you are comfortable with in a corrective environment.
Regards,
Yra
Jim Sinclair’s Commentary
And now a word from Wall Street’s leading investment firm who was recently quoted as saying, "Get over it."
Goldman Sachs says "dark pools" help investors
Tue Oct 27, 2009 7:42am EDT
(Reuters) – Anonymous trading venues known as "dark pools" are a technological evolution that have benefitted both institutional and retail trading by bringing down transaction costs, Goldman Sachs Group Inc (GS.N) said in a memo to the Securities and Exchange Commission.
Last week, the SEC voted unanimously for ways to make the dark pools more transparent, such as revealing the electronic trading messages that are sent to a limited group of market participants.
In a report submitted to the SEC on October 22, Goldman said the investing community — especially retail — has benefitted from the evolving market structure and industry competition.
The Goldman report, posted on the SEC website, summarized a meeting held on September 24 between its executives and the commission staff to discuss issues involving market structure including short selling and dark pools.
In the report, Goldman stated five common myths regarding dark pool trading and supplied arguments in an effort to dispel those myths.
Jim Sinclair’s Commentary
Green shoots, in the form of better earnings in many instances, have come at a human cost. However that is of little to no interest where Wall Street is concerned.
Cat permanently cuts 2,500 laid-off workers
"The company has laid off 22,000 workers worldwide since the global economy deteriorated late last year."
Company says it will bring 550 back to work by end of year
By STEVE TARTER (starter@pjstar.com)
Posted Oct 26, 2009 @ 10:13 AM
PEORIA — Caterpillar Inc. announced Monday that 2,500 laid-off U.S. employees will be permanently cut from the company, while 550 others will be brought back to work by the end of next year.
The company has laid off 22,000 workers worldwide since the global economy deteriorated late last year.
Caterpillar said it had started notifying the 2,500 employees of the permanent layoffs, but would not provide a breakdown of their locations. It plans to offer them severance packages.
"We’re not breaking out numbers," said spokeswoman Bridget Young, referring to what laid-off workers were affected.
Caterpillar also was not offering any details on the separation package being offered to former employees.
Jim Sinclair’s Commentary
Whatever the housing market does it will be labelled the "New Normal." and a success even if it lags at the bottom.
Fed Economist: "It Will Be Difficult for the Housing Market to Return to Normal"
Tuesday, October 27, 2009
The government, for all practical purposes, now controls the entire housing mortgage market.
A senior economist at the San Francisco Federal Reserve Bank, John Krainer, said in a report that that government sponsored enterprise intermediation of mortgage lending will make it difficult for the housing market to "return to normal."
Krainer said that GSEs such as Fannie Mae, Freddie Mac and Ginnie Mae now guarantee over 80% of originations, while non-agency mortgage securitization and loans have pretty much dried up.
Krainer wrote that the banking institution share of mortgage assets declined from 75 percent in the 1970s to 35 percent in 2008 due to the expansion of GSEs.
He added that the expansion of the GSEs has had a great impact on the type of borrowers receiving loans. Pointing to data in late 2006, at the end of the housing boom, Krainer said that about 20 percent of all mortgage originations were made up of subprime loans, and that by 2008, the subprime share was "effectively zero." This then yo-yo’d. The bankers moved out of this market, but the GSE’s stepped in.
Jim Sinclair’s Commentary
When it is all said and done the only privacy you have is the privacy you create for yourself.
None of you are terrorists, organized crime bosses, or drug lords but under the excuse of all of these concerns you are at risk.
It looks like it is back to the mayo jar or holding gold the way all traditional Alaskan mines do.
The raid that rocked the Met: Why gun and drugs op on 6,717 safety deposit boxes could cost taxpayer a fortune
More than 500 officers smashed their way into thousands of safety-deposit boxes to retrieve guns, drugs and millions of pounds of criminal assets. At least, that’s what was supposed to happen. Adrian Levy and Cathy Scott-Clark investigate
By ADRIAN LEVY and CATHY SCOTT-CLARK
Last updated at 11:23 PM on 24th October 2009
Operation Rize: An officer uses an angle grinder to open lockers containing safety-deposit boxes
The Finchley Road is one of the busiest thoroughfares heading out of London. It leads traffic north past Lord’s Cricket Ground and the multimillion-pound houses of some of the country’s richest hedge-fund managers all the way to the M1. At three in the afternoon it’s always pretty slow going, but on this particular summer Monday the traffic was almost at a standstill.
This was partly because the normal three lanes going north had been cut down to one. But it was also because of drivers slowing down to a crawl so they could gawp at the massive police operation unfolding on a busy corner of the road.
Police vehicles – both cars and menacing armoured trucks – jammed up two lanes. Dozens of armed officers in bulletproof vests were standing ready, waiting to be called inside an anonymous-looking building. From the sheer manpower and weapons on display it looked like the capital was under another terrorist attack.
But while this was the Metropolitan Police’s most ambitious operation in its 180-year history, it had nothing to do with national security. Only hours before, at a special briefing, teams from SCD6 (the Economic And Specialist Crime unit) and C019 (Specialist Firearms Command) hunkered down with technicians armed with angle grinders and drills. Also present were dog handlers, their animals trained to sniff out guns, drugs and explosives.
Jim Sinclair’s Commentary
Direct marketing via the establishment of an exchange particular to a production country. Another move away from the US dollar and a continuance of a trend.
Iran: Oil bourse inaugurated
27 October 2009
TEHRAN – The Iranian Oil Bourse was inaugurated on Monday in the Persian Gulf island of Kish as a venue to export oil and petrochemical products.
National Petrochemical Company’s Managing Director Adel Nejad-Salim said in the opening ceremony that all petrochemical products will be gradually offered on the market, IRNA news agency reported.
The oil bourse is intended as an exchange market for petroleum, gas, and petrochemicals in various currencies, primarily the euro and Iranian rial, and a basket of other major currencies.
On February 4, 2008 the Iranian Cabinet approved the creation of the oil bourse in two stages – first for crude and second for oil byproducts transactions.
Iran, having the world’s second largest gas reserves and third largest oil reserves, is trying to play a more active role in oil and petrochemical transactions in international markets.
Jim Sinclair’s Commentary
American manufacturing, what has become of you?
The following is from Consumer Reports and USA Today.
Consumer Reports’: Chrysler ranks dead last, Toyota’s Scion places first in predicted reliability
When it comes to predicted reliability – coming after years of gab from Detroit about how its cars don’t break down anymore – six American brands rank dead last in Consumer Reports’ latest predictions on automotive reliability being released now. At the other extreme, the best brand is Toyota’s Scion.
The worst is Chrysler and its least-reliable model is the Town & Country minivan, pictured above. A third of Chrysler, Jeep or Dodge models are considered much worse than average including the new Dodge Journey crossover. Only one Chrysler product is recommended by the magazine, the Dodge Ram 1500 pickup in the four-wheel-drive version. Last year, none got the nod.
And the best: The top seven are all Japanese, led by Toyota’s Scion, with the eighth a South Korean, Hyundai. Toyota and Honda dominate the reliability charts. Three of the top five models are made by Toyota, including the Lexus ES, Toyota Venza and Toyota Yaris hatchback. Number one is the Honda Insight, pictured above right.
In the press release, Consumer Reportstouts the reliability of Fords, saying it is the only Detroit maker with "world-class reliability," yet the top-ranking Ford brand is Mercury at 10th, followed by Ford at 16th and Lincoln at 20th. The report lauds the Ford Flex crossover, but rips on all-wheel-drive Lincoln clones of Ford cars, the MKS, MKX and MKZ. "They are now consistently making cars with world-class reliability," said Rik Paul, automotive editor of the magazine. The Ford Fusion and Mercury Milan, both built on the same platform, beat out the Honda Accord and Toyota Camry in reliability for the second year in a row.
Jim Sinclair’s Commentary
Politically curtailing QE would seem as if it would signal the demise of the Fed as a functioning reality at the hands of the legislative.
Those that created the Fed in 1913 can extinguish the Fed in 2009.
Of course that would be called an audit and would transform the Fed primarily into a policing agency.
Extending jobless benefits clears Senate hurdle
Bill would expand unemployment checks to maximum of 99 weeks
By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) – The Senate moved closer Tuesday to approving an extension of unemployment benefits for an extra 20 weeks.
The Senate agreed on an 87-13 procedural vote to bring the measure to a final vote, killing a Republican filibuster that had delayed action for more than a week.
If the bill is approved by both chambers on Capitol Hill and is signed by the president, those who cannot find work would be eligible for a maximum of 99 weeks of benefits.
The Senate bill would extend benefits for 14 additional weeks in all states, and an additional six weeks in states with unemployment rate above 8.5%. In September, 26 states and the District of Columbia had unemployment rates above 8.5%.
Nationally, the unemployment rate was 9.8% in September, the highest in 26 years. Most analysts expect the unemployment rate to reach 10% soon and to remain above 9% for at least another year, even if the economy continues to recover.
Jim Sinclair’s Commentary
Turkey will become a victim.
|
Tensions Between Turkey and the West Increase |
|
Relations Between Turkey, Israel Continue to Falter |
|
US report: Turkey imposes restrictions on religious expression |
|
Iran hails Turkey’s nuclear support |
