Dear CIGAs,
Today’s attack on gold and buying of the dollar was like a recent polar bear attack on a tourist in Churchill, Canada’s far north.
Jim Sinclair’s Commentary
Grabbing at straws? A sign of concern? A guarantee of QE to infinity?
Federal Reserve tries theater ads to burnish its image
Spots urging shoppers to use their credit cards wisely will be shown on big screens in 12 U.S. cities. The central bank has long been accused of neglecting its consumer protection duties.
By Jim Puzzanghera
November 26, 2009
Reporting from Washington – The Federal Reserve isn’t too popular these days, what with its failure to predict or prevent the financial crisis and recession, not to mention its involvement in last year’s bailouts. Rep. Ron Paul (R-Texas) has a bestselling book out called "End the Fed," and some lawmakers are looking to cut back the central bank’s power.
It sounds like a perfect time for an ad campaign.
The Fed has made a 45-second public service announcement to help consumers use their credit cards wisely. The spot will run before movie previews at theaters in 12 U.S. cities, including Long Beach, from Friday through Dec. 3.
Over jazzy music, the announcer asks: "Want to use your credit card wisely? Here are some tips you can trust from the Federal Reserve." With the Fed logo featured prominently, the ad offers suggestions such as paying your bill on time and watching for changes in the terms of the account.
The Fed has been under fire for neglecting its consumer protection authority for years — particularly for taking 14 years to enact rules protecting consumers from unscrupulous mortgage lending.
Jim Sinclair’s Commentary
Of course they could. The question is will they?
The answer is yes if they fear their very existence. Therefore an emotion will rule the decision.
That could be a miscalculation.
‘US warned China that Israel could bomb Iran’
Nov 26, 2009 9:00 | Updated Nov 26, 2009 15:02
Two senior officials from the White House, Dennis Ross and Jeffrey Bader, made a trip to China on a "special mission" to garner support in Beijing over the Iranian nuclear program, according to a Thursday report in The Washington Post. The officials visited China two weeks before US President Barack Obama arrived in Beijing.
The officials reportedly carried the message that if China would not support the US on the issue, Israel would be likely to bomb Iranian nuclear facilities. The paper quoted the officials as saying that Israel saw the issue as "an existential issue," and that "countries that have an existential issue don’t listen to other countries."
They stressed that were Israel to bomb Iran, the consequences for the region would be severe.
The efforts seemed to have yielded results, according to White House officials quoted in the report, as the six world powers, including both China and Russia, put together a resolution critical of Iran’s nuclear program earlier this week.
Jim Sinclair’s Commentary
It is not the hat that is the giveaway, it is the tie.
It looks a lot like the real estate developer projects in Dubai.
Jim Sinclair’s Commentary
What is good for the statistical Goose looks like it can kill the living Gander.
Homebuyer Tax Credits Threaten the FHA
Funding a down payment with the credit increases the odds the buyer will default.
By ROBERT C. POZEN
A few weeks ago, President Barack Obama signed legislation extending an $8,000 tax credit for first-time home buyers. The refundable tax credit, available even if a family has no taxable income, will enable many more buyers to close on a home. But it also could bankrupt the Federal Housing Administration (FHA) and, by doing so, damage an already weak housing market.
The tax credit was put in place as part of the stimulus package signed into law earlier this year. Initially, it was available only to first-time buyers with a combined income of $150,000 or less ($75,000 for individuals). Approximately 40% of all first-time buyers used the credit in 2009, so extending it was strongly supported by real estate brokers, home builders and their congressional allies.
The extension the president signed makes the credit available to first-time buyers, but also to people who have owned a home for at least five years. In addition, it raises the maximum income for a qualified buyer to $225,000 a year for couples and makes the credit available until mid-2010. (It had been set to expire at the end of this month.)
The problem is that the FHA insures mortgages of homes below certain price levels with such a low down payment that it can be funded solely by the refundable tax credit. And, as we’ve seen in the recent housing crisis, buyers with no skin in the game are more likely than others to default on their mortgages when the value of their home falls below their mortgage balance.
Here’s how the credit allows buyers to avoid putting their own money at risk. Suppose a couple making $60,000 annually buys a home worth $200,000. They can get an FHA-insured loan if they put down 3.5% of the purchase price, about $7,000. The couple will also need to come up with another $1,000 in closing costs, for a total of $8,000. The couple can either dip into savings or borrow that money from relatives or somewhere else on a temporary basis.
Jim Sinclair’s Commentary
To those not familiar, what is Dubai anyway?
What is Dubai and who runs it?
From the pinnacle of the world economic boom to the brink of bankruptcy, Christopher Davidson of Durham University explains some of the background to the glittering city in the desert.
The inability of the government of Dubai to refinance the massive debts incurred by its largest state-owned company, Dubai World, has sent shockwaves throughout the world prompting many observers to ask not only how severe the economic crisis is, but also what exactly is Dubai and who is in control of it?
Although frequently described as a city state or even as a country in its own right, Dubai is a constituent member of the federation of United Arab Emirates along with six other emirates.
Only one of these, Abu Dhabi, possesses substantial oil reserves, and as such it has dominated most areas of federal politics – including foreign affairs and defence – since the UAE was formed following Britain’s withdrawal from the Persian Gulf in 1971.
Control
Dubai, however, has always maintained an air of autonomy within the federation as a result of its long history as a successful free port. When the UAE constitution was drafted this relative independence was taken into account as each emirate was allowed to retain control over its own natural resources and economic development path.
Jim Sinclair’s Commentary
More background on Dubai. Dubai debt was trading above par 100% yesterday and dropped to 40% today.
If the UAE wanted to bail out Dubai and could think fast they could have purchased a lot of it at quite a discount today.
Where the Dubai Fallout Will Land
November 27, 2009
Edward Hugh
Back in the heady days of 2006, some 30,000 cranes, roughly a quarter of total global capacity, were busy whirring away in Dubai. Today most of these devices have either left to find service in other parts of the globe, or lie silent, unused and unloved.
In what is only the latest sign of the ongoing property snarl-up affecting the emirate, Nakheel, Dubai World’s property developer subsidiary, asked on Wednesday for a delay in their next debt payment. The move was widely seen by investors as a technical default, raising concerns about investment in risky assets across the globe. So, while their company slogan may well be that the sun never sets over Dubai World, the fact is that Dubai World’s sun not only no longer shines, it is suffering from something more like a total eclipse.
According to the last reckoning, government owned Dubai World has some $59 billion in outstanding liabilities, making the company responsible for the lion’s share of the total $80-100 billion in estimated Dubai state debt. Up to now all maturing government-linked debt has been paid off in full, with government funds making up any shortfall in private funds. But the latest announcement suggests that weaknesses in the global property sector and vulnerability of the emirate’s economic model is leading the government to have second thoughts, and the clear impression is that Nakheel could be a very different story given the government’s expressed intention of supporting only viable companies.
Jim Sinclair’s Commentary
Here is some more education on today’s gold positive event.
When you build an indoor ski mountain in the desert city of Dubai, you really have to have a few screws loose. A hotel with gold trimming might just be a little over the decorating top?
Dubai’s threat to U.S. banks
Although there’s little direct exposure to Dubai World’s default risk, U.S. financial institutions could take major indirect hits.
By Les Christie, CNNMoney.com staff writer
November 27, 2009: 12:11 PM ET
NEW YORK (CNNMoney.com) — The news that the sovereign wealth fund of Dubai requested a postponement of billions of dollars of debt this week could pose a big problem for U.S. banks.
The state-run investment company, Dubai World, owes about $60 billion. It rang up much of that in a building boom that included the world’s tallest skyscraper and the Palm Islands in the Persian Gulf, settlements shaped like palm trees.
New York-based Citigroup has the most exposure to default risk at Dubai World, which a J.P. Morgan equity research note estimated at $1.9 billion.
While the other major banks in the United States are believed to have little direct exposure, the ripple effect could be more crippling, according to Richard Bove, a bank analyst with Rochdale Securities.
"There could be huge indirect exposure," he said. "One has to assume that U.S. banks will be hurt."
Jim Sinclair’s Commentary
This picture was taken today when the management of a Dubai real estate project were called upon. The State was out of camels so the next best exit was taken.
Jim Sinclair’s Commentary
You can see that the confidence in US financial entities having overcome their problems is tenuous at best.
U.S. Banks Credit Default Swaps Widen: CMA DataVision
November 27, 2009
NEW YORK (Reuters) – The costs to insure the debt of some big U.S. banks against potential default rose between 10 and 20 basis points on Friday amid a selloff in riskier assets on investors’ concerns about Dubai’s debt difficulties.
Five-year credit default swaps for Morgan Stanley widened to 150 basis points from about 137 basis points at Wednesday’s close, according to CMA DataVision. Bank of America’s CDS widened by about 10 basis points to 140 basis points and Citigroup’s CDS widened by about 20 basis points to 210 basis points.
U.S. bond markets were closed on Thursday for the U.S. Thanksgiving holiday.
(Reporting by John Parry; Editing by Chizu Nomiyama)
