Jim Sinclair’s Commentary
California is a functional state bankruptcy. 39 more states are right behind. It is not a question of if they will fail, but when they will admit it has already happened.
None of this is positive for the US dollar when you consider that Greece does not make up even 3% of Euroland’s GDP and has upset the euro.
We can easily have bankruptcies of US states in excess of 33% of the national GDP.
Illinois enters a state of insolvency
By: Paul Merrion, Greg Hinz and Steven R. Strahler
January 18, 2010
As Illinois’ fiscal crisis deepens, the word "bankruptcy" is creeping more and more into the public discourse.
"We would like all the stakeholders of Illinois to recognize how close the state is to bankruptcy or insolvency," says Laurence Msall, president of the Civic Federation, a fiscal watchdog in Chicago.
"Bankruptcy is the reality that looms out there," Republican gubernatorial candidate Andrew McKenna Jr. says.
While it appears unlikely or even impossible for a state to hide out from creditors in Bankruptcy Court, Illinois appears to meet classic definitions of insolvency: Its liabilities far exceed its assets, and it’s not generating enough cash to pay its bills. Private companies in similar circumstances often shut down or file for bankruptcy protection.
"I would describe bankruptcy as the inability to pay one’s bills," says Jim Nowlan, senior fellow at the University of Illinois’ Institute of Government and Public Affairs. "We’re close to de facto bankruptcy, if not de jure bankruptcy."
Legal experts say the protections of the federal bankruptcy code are available to cities and counties but not states.
Jim Sinclair’s Commentary
Friday’s first hit.
Bank Closing Information – January 22, 2010
These links contain useful information for the customers and vendors of these closed banks.
Premier American Bank, Miami, FL
Jim Sinclair’s Commentary
The only time that I can recall a more embarrassing time for the USA and its financial leadership was when President Carter’s entire cabinet submitted their resignation.
This is a horrible mess with no practical solution. This is so far from dollar positive it borders on bad comedy.
AIG Took Four Tries on Filing as Fed Asked to Withhold Data
By Hugh Son and Michael J. Moore
Jan. 21 (Bloomberg) — American International Group Inc. submitted four rounds of regulatory filings in six months, with more than 1,000 redactions, as the Federal Reserve Bank of New York pressed the insurer to withhold data about bailout payments to banks.
The insurer made an initial filing on Dec. 2, 2008, about Maiden Lane III, the taxpayer-funded vehicle that bought assets from AIG’s trading partners. After the Securities and Exchange Commission asked for more information, AIG amended December filings three times. The last set of amendments, in May 2009, included more than 400 redactions, and the SEC granted the company permission to withhold the omitted data until 2018.
According to e-mails released this month, AIG was asked to limit what the public knew about the Maiden Lane transactions. The payments have been called a “backdoor bailout” by lawmakers because banks, including Goldman Sachs Group Inc. and Societe Generale SA, were reimbursed at 100 cents on the dollar for mortgage-linked securities that had declined in value.
“This has been terribly mishandled,” said James D. Cox, a professor of corporate and securities law at Duke University School of Law. “There’s this pattern that emerges that the New York Fed, for a variety of reasons including not causing nervousness about who was an AIG counterparty, covered up its rather heavy-handed approach to the bailout.”
Federal Reserve Chairman Ben S. Bernanke invited congressional auditors to do a “full review” of the AIG rescue and the New York Fed provided 250,000 pages of documents to a House panel this week. The New York Fed said Jan. 19 that it “assisted AIG in ensuring the accuracy of its disclosures and protected important U.S. taxpayer interests” and that the insurer was responsible for its disclosures.
Jim Sinclair’s Commentary
The US dollar rally is based on the assumption of a sustainable US economic recovery. That certainly looks like an over the top expectation for a set of gnarly circumstances.
Bottom bouncing has no less than a 50% chance of being bottom busting if the administration loses its wealth effect in the equity markets.
You have to see that there is no defined long term plan in Washington, but instant reactions to daily circumstances, many not well thought out.
This quote from the following article says it all, "We do not foresee any meaningful improvement in the retail card credit quality in the coming months," said Managing Director Michael Dean. "U.S. consumers remain under stress on a number of fronts, most notably on the employment front, and retail card chargeoffs will continue to reflect those pressures."
Fitch: U.S. Retail Credit Card Defaults Hit Near-Record Levels with No Relief in Sight
January 20, 2010
U.S. consumers defaulted on store-branded credit cards at near-record levels during the holiday shopping season, with 2010 likely to bring more of the same trend, according to Fitch Ratings.
Fitch’s December Retail Credit Card Index results show that more than one in every eight dollars of receivables was written off as uncollectable during the November collection period on an annualized basis. Taken with the recent delinquency trends and Fitch’s expectation for unemployment, Fitch expects retail card chargeoffs to remain elevated throughout first half-2010.
"We do not foresee any meaningful improvement in the retail card credit quality in the coming months," said Managing Director Michael Dean. "U.S. consumers remain under stress on a number of fronts, most notably on the employment front, and retail card chargeoffs will continue to reflect those pressures."
Despite the elevated chargeoff and delinquency measures, Fitch expects retail card ABS ratings to remain stable throughout 2010. Excess spread remains robust, which coupled with loss coverage multiples and other structural protections will shield investors from potential downgrades or early amortization scenarios.
In December, Fitch’s Retail Credit Card Chargeoff Index snapped a two-month decline, rising 122 basis points (bps) to 12.56% from the previous month. Throughout 2009, chargeoffs surpassed the previous record (12.25% in January 2005) five times, establishing a new all-time high of 12.81% in August. Throughout the year, retail chargeoffs averaged 11.88% (more than 42% above the historical average of 8.34%).
Jim Sinclair’s Commentary
Paranoid, or just being prepared?
These guys have armed themselves, but are more likely to shoot eachother.
This is the last dip at the well!
Goldman Sachs Had Bomb-Sniffing Dogs, Police Barricades At Its Headquarters Before Earnings Announcement
First Posted: 01-22-10 08:59 AM
As Goldman Sachs prepared to announce its fourth quarter earnings and employee compensation levels yesterday, the bank had bomb-sniffing dogs and police barricades on hand at its New York City headquarters, the New York Post reports.
The decision to boost security as its offices was apparently driven by growing fervor over the bank’s huge profits and bonuses. Yesterday, the bank announced that it earned $13.4 billion for the year, and set aside $16 billion for employee compensation. Goldman was widely expected to set aside approximately $20 billion for employee pay, but CFO David Viniar suggested yesterday in a call with reporters that the bank wasn’t blind to the "pain and suffering in the world" and "wasn’t deaf to the calls for restraint."
Viniar’s remarks indicate an abrupt change in tone among Goldman Sachs execs. In November, CEO Lloyd Blankfein — who had previously bragged that the bank was doing "God’s work" — said the following at an industry conference:
I often hear references to higher compensation at Goldman. What people fail to mention is that net income generated per head is a multiple of our peer average. The people of Goldman Sachs are among the most productive in the world."
Despite what seems to be a new concern among the firm’s leaders about the PR implications of Goldman’s banner year, the bank’s announcement of the pay packages that individual executives receive will be closely scrutinized. Dealbook spoke to one Goldman insider, who suggested Blankfein’s bonus will be a measuring stick for employees who may see their pay cut. (Blankfein earned $68 million in 2007, but didn’t receive a bonus last year.) Here’s Dealbook:
Jim Sinclair’s Commentary
The following video on yesterday’s most important event, the Supreme Court decision that allows corporations to make unlimited political donations, is extremely important.
Take a few minutes to review this.
Jim Sinclair’s Commentary
Jobs, jobs and more jobs are what voters want.
That is not forthcoming, and you can count on the continued pressure on the panic button.
Florida and Flagler County December Unemployment Rate Rises
Flagler’s 16.9% unemployment rate is the highest in the state. The state unemployment rate is 11.8%
By Toby Tobin
Palm Coast, FL – January 22, 2010 – Again, Flagler County leads Florida as the county with the highest rate of unemployment. December’s unemployment rate in the county was 16.9%, up from 16.8% in November and 11.8% in December 2008. Florida’s unemployment rate in December was 11.8% compared to 11.5% in November and 7.6% in December ’08. Florida’s rate is the highest since May 1975 when it was 11.9%.
Flagler was followed by:
Hernando – 14.9%
St. Lucie – 14.2%
Indian River – 14.1%
Marion – 14.0%
Nationally, the unemployment rate stayed at 10%. Eleven states and Washington DC were above the national average. Four states and the District of Columbia had rates higher than Florida:
California – 12.4%
District of Columbia – 12.1%
Michigan – 14.6%
Rhode Island – 12.9%
South Carolina – 12.6%
Jim Sinclair’s Commentary
If you are going bull on the US dollar it might be wise to review this article first.
Do you now think that 2010 may be a very important midterm election year that could easily guarantee a one term administration?
The Global Debt Bomb
Daniel Fisher, 02.08.10, 12:00 AM ET
Kyle Bass has bet the house against Japan–his own house, that is. The Dallas hedge fund manager (no relation to the famous Bass family of Fort Worth) is so convinced the Japanese government’s profligate spending will drive the nation to the brink of default that he financed his home with a five-year loan denominated in yen, which he hopes will be cheaper to pay back than dollars. Through his hedge fund, Hayman Advisors, Bass has also bought $6 million worth of securities that will jump in value if interest rates on ten-year Japanese government bonds, currently a minuscule 1.3%, rise to something more like ten-year Treasuries in the U.S. (a recent 3.4%). A former Bear Stearns trader, Bass turned $110 million into $700 million by betting against subprime debt in 2006. "Japan is the most asymmetric opportunity I have ever seen," he says, "way better than subprime."
Bass could be wrong on Japan. The island nation (and the world’s second-largest economy) has defied skeptics for so long that experienced traders call betting against it "the widowmaker." But he may be right on the bigger picture. If 2008 was the year of the subprime meltdown, 2010, he thinks, will be the year entire nations start going broke.
The world has issued so much debt in the past two years fighting the Great Recession that paying it all back is going to be hell–for Americans, along with everybody else. Taxes will have to rise around the globe, hobbling job growth and economic recovery. Traders like Bass could make a lot of money betting against sovereign debt the way they shorted subprime loans at the peak of the housing bubble.
National governments will issue an estimated $4.5 trillion in debt this year, almost triple the average for mature economies over the preceding five years. The U.S. has allowed the total federal debt (including debt held by government agencies, like the Social Security fund) to balloon by 50% since 2006 to $12.3 trillion. The pain of repayment is not yet being felt, because interest rates are so low–close to 0% on short-term Treasury bills. Someday those rates are going to rise. Then the taxpayer will have the devil to pay.
Whether or not you believe the spending spree was morally justified, you have to be concerned about the prospect of a dismal, debt-burdened fiscal future. More debt weighs heavily on GDP, says Carmen Reinhart, a University of Maryland economist. The coauthor, with Harvard professor Kenneth Rogoff, of This Time It’s Different: Eight Centuries of Financial Folly (Princeton, 2009), Reinhart has found that a 90% ratio of government debt to GDP is a tipping point in economic growth. Beyond that, developed economies have growth rates two percentage points lower, on average, than economies that have not yet crossed the line. (The danger point is lower in emerging markets.) "It’s not a linear process," she says. "You increase it over and beyond a high threshold, and boom!" The U.S. government-debt-to-GDP ratio is 84%.
Jim Sinclair’s Commentary
Washington is moved by one thing, and that is the maintenance of a power base.
Jobs are all the voters care about. Jobs depend on a sustained economic recovery.
The chances of a sustained economic recovery is gnarly at best.
Who’s Up for Reelection in 2010? Full List
Retiring Senators
Ted Kaufman (D) of Delaware
Kit Bond (R) of Missouri
Sam Brownback (R) of Kansas
Mel Martinez (R) of Florida
George Voinovich (R) of Ohio
Democratic incumbents
Blanche Lincoln of Arkansas
Barbara Boxer of California
Michael Bennet of Colorado
Christopher Dodd of Connecticut
Daniel Inouye of Hawaii
Roland Burris of Illinois
Evan Bayh of Indiana
Barbara Mikulski of Maryland
Harry Reid of Nevada
Kirsten Gillibrand of New York
Chuck Schumer of New York
Byron Dorgan of North Dakota
Ron Wyden of Oregon
Arlen Specter of Pennsylvania
Patrick Leahy of Vermont
Patty Murray of Washington
Russ Feingold of Wisconsin
Republican incumbents
Richard Shelby of Alabama
Lisa Murkowski of Alaska
John McCain of Arizona
Johnny Isakson of Georgia
Mike Crapo of Idaho
Chuck Grassley of Iowa
Jim Bunning of Kentucky
David Vitter of Louisiana
Judd Gregg of New Hampshire
Richard Burr of North Carolina
Tom Coburn of Oklahoma
Jim DeMint of South Carolina
John Thune of South Dakota
Bob Bennett of Utah
Thoughts For The Day:
The arrogance the Fed is displaying to the press in their angry state of mind over the AIG inquiry combined with the arrogance of the banksters in public testimony has assured that this begging bowl bonus season is the last dip at the well.
Jim Sinclair’s Commentary
In the first round of this financial crisis we financed busted European and British financial entities by doing swaps with the ECB, the Bank of England and the Swiss National Bank. What is somewhat comical is the FDIC that cannot fiducially meet its present obligation while looking to take on more. What a mess!
FDIC and Bank of England Announce Enhanced Cooperation in Resolving Troubled Cross-border Financial Institutions
The Federal Deposit Insurance Corporation (FDIC) and the Bank of England today announced their agreement to a memorandum of understanding (MOU) expanding their cooperation when they act as resolution authorities in resolving troubled deposit-taking financial institutions with activities in the United States and United Kingdom. The MOU was signed by FDIC Chairman Sheila Bair and Bank of England Governor Mervyn King.
The MOU represents a commitment by the FDIC and Bank of England to enhance their collaboration to promote greater coordination in the face of distress at banks that operate in the two countries and thus protect the wider public interest. It recognizes the importance of close and effective communication about the operations of financial institutions covered by the MOU and differing national laws, consultation on developing issues, cooperative contingency planning for firms covered by the MOU, and supporting the development of appropriate recovery (going concern) and resolution (gone concern) plans. In such areas, the MOU also underlines the need for the FDIC and the Bank to work closely together with other authorities in the United States and the United Kingdom.
Most importantly, the MOU represents a commitment to cooperate in the resolution of cross-border firms in compliance with the laws and regulations of the United States and the United Kingdom.
Bank of England Governor King and Chairman Bair agreed that this MOU is an important step towards improved coordination.
FDIC Chairman Bair said, "The recent financial crisis demonstrates that greater international coordination among resolution authorities as well as resolution processes capable of resolving the largest, most complex financial institutions are necessary to protect the public. This MOU is an invaluable step forward toward implementing the recommendations of the Basel Committee’s Cross Border Resolution Group, which the FDIC co-chaired. It is also a further step in support of the continuing work of the Financial Stability Board’s Crisis Management Working Group, chaired by Paul Tucker of the Bank of England."
Bank of England Governor King said, "A key legislative response in the United Kingdom to the recent financial crisis has been the adoption of a special resolution regime that enables failed UK banks to be resolved in the public interest. The Bank of England has in consequence become a resolution authority in the United Kingdom and, as such, it makes good sense to develop close relationships with other resolution authorities so that the toolkit and powers now available to us can be applied effectively to large and complex cross-border banks. The MOU should also help to enhance coordination with other regulatory authorities in the United States and United Kingdom."
Attachment:
Memorandum of Understanding – PDF (PDF Help)
# # #
Notes to editors:
1. Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation’s banking system. The FDIC insures deposits at the nation’s 8,099 banks and savings associations and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars – insured financial institutions fund its operations.
2. The Bank of England has two core purposes: it exists to ensure monetary stability and to contribute to financial stability. In February 2009, the Banking Act 2009 was introduced which gave the Bank new responsibilities and powers in relation to financial stability. A key part of the Banking Act was the creation of a Special Resolution Regime (SRR) which gives the UK Tripartite authorities – the Treasury, Bank of England and Financial Services Authority (FSA) – a permanent framework providing tools for dealing with distressed banks and building societies. Further information about the UK Special Resolution Regime is available on the Bank of England’s website at: http://www.bankofengland.co.uk/financialstability/role/risk_reduction/srr/
