Jim Sinclair’s Commentary
No surprise there.
FDIC chief expects 2010 bank failures to exceed 2009
Monday, January 25, 2010, 8:32pm EST | Modified: Monday, January 25, 2010, 8:34pm
Reacting to President Barack Obama’s recent proposal to impose limits on the size and scope of banks, Federal Deposit Insurance Corp. Chair Sheila Bair said during a visit to Miami Monday that institutions should wall off their non-bank financial activities from their insured deposits.
On Thursday, Obama said he wants to prevent financial institutions that own a bank from also owning, investing in or sponsoring a hedge fund, private equity fund or proprietary trading operations that are not related to serving their customers. The president also said that large financial firms could not increase their national market share of assets other than insured deposits beyond a certain point.
Just before speaking to the Florida Banker’s Association on Monday night, Bair said she hasn’t seen enough details of Obama’s proposal to say whether she supports it or not. She said financial institutions could do a better job of walling of their FDIC-insured banks from some of their more risky financial activities so that the banks aren’t hurt by losses in those areas.
“The bulk of these problems actually occurred outside the insured deposit banks. Just look at Lehman Brothers and AIG,” Bair said.
She added that large institutions should have a self-liquidation plan filed with regulators in case they need to be wound down.
Jim Sinclair’s Commentary
Doing business with major Chinese companies has collateral benefits.
China Wealth Fund Weighs New Commodities Bets After 2009 Gains
By Bloomberg News
Jan. 27 (Bloomberg) — China’s $300 billion sovereign wealth fund is considering new investments in resource-related companies after bets on commodities producers from the U.S. to Kazakhstan paid off in 2009.
China Investment Corp. increased spending on energy and minerals assets last year to profit as the global economy recovers. The Beijing-based fund avoided the worst of the credit crunch in its first full year in 2008 and may have had a return of more than 10 percent in 2009, said London-based Jan Randolph, director of sovereign risk, analysis and forecasting at IHS Global Insight.
“They have timed the upside well both in market terms, but also to fit in with the longer-term diversification strategy,” Randolph said.
CIC has had “early” talks for direct investments in Brazil, the world’s second-biggest iron-ore exporter, and Mexico, the No. 2 silver producer, CIC Chairman Lou Jiweisaid at the Asian Financial Forum in Hong Kong on Jan. 20. Jiwei pumped about $10 billion into commodity-related companies in the second half of 2009, according to data compiled by Bloomberg.
With China’s reserves at $2.4 trillion and swelling by an average of $37.8 billion a month last year, CIC has asked the government for another $200 billion, the Economic Observer reported Nov. 21, citing a person it didn’t identify.
Jim Sinclair’s Commentary
If this is the estimate based on a firm economy, consider what will occur if bottom bouncing fails.
Deficit to hit $1.35 trillion in 2010, CBO says
Economic growth to remain ‘muted,’ analysts estimate
By Robert Schroeder, MarketWatch
Jan. 26, 2010, 3:18 p.m. EST
WASHINGTON (MarketWatch) — The U.S. government will in 2010 record its second-biggest budget deficit since World War II, the Congressional Budget Office estimated Tuesday, while economic growth will probably stay "muted" for the next few years.
Assuming current laws and policies remain unchanged, the deficit will hit $1.35 trillion in 2010, CBO said in its annual budget outlook. The report was released about one week before President Barack Obama transmits his fiscal 2011 budget to Congress, and underscored the fiscal challenges facing the year-old administration.
CBO expects that the economy will continue to grow, albeit at a slower pace than in earlier recoveries. The unemployment rate will average more than 10% during the first half of 2010 before beginning a gradual decline, the congressional analysts also estimate
Jim Sinclair’s Commentary
$80 billion will not scratch the surface of the problem. Note the starting of aid to states.
Senate Democrats Said to Consider $80 Billion Jobs Legislation
By Brian Faler
Jan. 26 (Bloomberg) — Lawmakers are set to consider a jobs-stimulus package totaling about $80 billion that would provide tax credits to small and medium-sized businesses that hire workers, a Democratic senator said.
The plan, to be presented today to Senate Democrats, would include aid to state governments to prevent layoffs and additional funding for infrastructure projects, said the senator, who asked not be identified. The package also will likely include energy-related provisions such as incentives to weatherize homes, a Senate aide said.
Democratic leaders hope to have the measure on the Senate floor by the second week in February, the aide said, speaking on condition of anonymity.
The proposal is smaller than an economic aid package approved last month by the House, in part because lawmakers plan to approve extensions in unemployment benefits costing tens of billions as part of separate legislation.
The House plan, costing more than $150 billion, eschewed small business tax cuts in favor of spending $53 billion to extend unemployment benefits including so-called COBRA subsidies to help the jobless buy health insurance.
Jim Sinclair’s Commentary
Hello, I am from the government here to help you with fast processing and effective delivery.
Foreclosure relief program riddled with flaws
Latest effort to save homes having only limited impact, faces challenges
By John W. Schoen
updated 9:59 a.m. ET, Tues., Jan. 26, 2010
Millions of Americans who are struggling to save their homes from foreclosure are trapped in a labyrinth of disappointment and misinformation created by the very institutions they’ve been told are trying to help them.
Ten months into the government’s third program in two years to stop a record wave of foreclosures, homeowners, housing counselors, consumer advocates and attorneys working with borrowers report that the latest effort is falling far short of its goal. In many cases, lenders are moving to foreclose even after homeowners get approved for loan modification, housing counselors and attorneys say.
The problem, they say, goes beyond the paperwork snafus and staffing shortages at lenders and mortgage servicers that have created massive bottlenecks for the millions at risk of losing their homes. Those have plagued the government’s foreclosure relief efforts since the first government-industry joint program, the Hope Now Alliance, was launched in October 2007.
Homeowners face numerous hurdles trying to get their mortgage modified. In some cases, applications are rejected with little or no explanation. It’s impossible to independently verify if a homeowner qualifies because the Treasury has not disclosed the eligibility formula used by lenders — a complex set of calculations that housing counselors and consumer attorneys have dubbed “the black box.” Housing attorneys report that some lenders are ignoring the program’s guidelines altogether and moving to foreclose without properly reviewing mortgages for possible modification.
“It’s been a stubborn challenge," said a Treasury official, who agreed to an interview but requested anonymity. "But this is something that’s never been done before."
Jim Sinclair’s Commentary
The political axiom is if you cannot stop it, adopt it.
Interest rates must rise as international funding of the US deficit is not going on much longer or at a satisfactory level. Funding the deficit then has to turn in on itself, impacting all varieties of US Treasuries across the interest rate curve. Set a rate as a spread rather than as a hard number.
Fed mulls new benchmark rate.
Federal Reserve officials begin a two-day FOMC meeting today, and one of the items on the agenda is whether to adopt a new benchmark interest rate to replace the one that’s been used for the last two decades. Instead of the federal funds rate, officials may choose to use the interest paid on excess bank reserves.
Jim Sinclair’s Commentary
The devil is always in the details.
This is not going to do much at all and politically can only harm his liberal power base.
Now note the job stimulus bill to control political damage caused by "Volcker Rules" and "Budget BS" with the liberal support.
White House aims for stimulus, and reduced spending.
Gearing up for the State of the Union address tomorrow, the White House released details on a series of initiatives meant to help middle-class families, including a set of tax credits and an automated-IRA system for workplaces. Obama also proposed a three-year freeze on domestic spending accounting for one-sixth of the federal budget. The freeze would save $250B by 2020. In addition, Democratic lawmakers are considering an $80B jobs-stimulus package that would provide tax credits to small and medium-sized businesses that hire workers.
Jim Sinclair’s Commentary
The only way a Democrat will win in November is by shifting parties.
Management just doesn’t get it. Main Street makes or breaks November. Wall Street is meaningless during this time.
People on the unemployment line have never heard of Volcker. You have to love the MOPE of "Volcker Rules." Someone honestly believe that will get votes on Main Street in November.
Banks pull another $1 billion from small business lending
By Catherine Clifford, staff reporter
January 18, 2010: 2:50 PM ET
NEW YORK (CNNMoney.com) — The nation’s biggest banks cut their collective small business lending balance by another $1 billion in November, according to a Treasury report released late Friday. The drop marked the seventh straight month of declines.
The 22 banks that got the most help from the Treasury’s bailout programs have cut their small business loan balances $12.5 billion since April, when the Treasury began requiring them to file monthly reports on the tally. The banks’ total lending has fallen 4.6% in that seven-month period, to $256.8 billion.
As Wall Street megabanks return to health — and celebrate with lavish bonuses — President Obama and his administration have been pushing financiers to help spur a Main Street recovery. Small business owners are still reporting difficulty finding banks willing to extend the credit they need to launch, run and grow their ventures.
In December, the President met with a dozen CEOs of the nation’s biggest banks to pressure them to reverse their small business lending declines.
Hitting bottom: There are some signs the credit drop may be at or near its nadir.
Jim Sinclair’s Commentary
This is modest progress, but only the uptick rule and mandatory borrowing of shares to deliver against a short sale is meaningful.
SEC May Approve Restrictions on Short Sales When Stocks Plunge
By Nina Mehta
Jan. 23 (Bloomberg) — Concern that short-sellers accelerate stock declines may prompt the Securities and Exchange Commission to adopt a rule next month aimed at curbing bearish bets when equities are plunging.
The regulation would require the trades be executed above the best existing bid in the market when shares fall 10 percent in a day, said Brian Hyndman, the senior vice president in transaction services at Nasdaq OMX Group Inc. In a short sale, an investor borrows an asset and sells it, hoping to profit from a decrease by repurchasing it later at a lower price.
Forcing short sellers to wait for a stock to rise above the best price bid may prevent them from flooding the market with sell orders and causing losses to multiply. Some exchange officials say the restrictions known as uptick rules don’t work, citing studies that show they may be less effective during panics that drive prices down and volatility up.
“There is no empirical data to support the introduction of a new rule,” Hyndman said yesterday at a securities industry conference in Chicago. “But this is the least intrusive of the proposals the SEC was considering.”
Hyndman expects the SEC to adopt a so-called alternative uptick rule that includes a 10 percent trigger, changing regulations that were eliminated from U.S. markets in 2007. The commission asked the public last April to comment on strategies to cushion the impact of short selling following criticism that hedge funds and other speculators used trading tactics to deepen market retreats that began in 2008.
Jim Sinclair’s Commentary
No military base equals no rating?
Standard & Poor’s warns may downgrade Japan
TOKYO — Standard & Poor’s warned Tuesday that it might downgrade its credit rating for Japan’s sovereign debt, saying efforts to put the public finances in order were slowing under the new government.
The ratings firm revised its outlook on Japan’s "AA" long-term government bond rating to "negative" from "stable".
"The outlook change reflects our view that the Japanese government’s diminishing economic policy flexibility may lead to a downgrade unless measures can be taken to stem fiscal and deflationary pressures," S&P said.
"The ratings on Japan could fall by one notch if economic data remain weak and measures to boost medium-term growth are not forthcoming, given the country’s high government debt burden and its weak demographic profile."
An "AA" rating, the third highest possible, means Japan is seen as having an extremely strong capacity to repay its borrowings.
The Organisation for Economic Cooperation and Development has warned that Japan’s public debt is set to soar to more than 200 percent of gross domestic product by 2011.
Jim Sinclair’s Commentary
Sounds like a sci-fi movie where the machines take over the Earth.
Wall Street has invented this disaster. Why should the algorithms not melt the exchanges as well? It only seems fair.
Computer-driven trading raises meltdown fears
By Jeremy Grant in London
Published: January 25 2010 23:06 | Last updated: January 25 2010 23:06
An explosion in trading propelled by computers is raising fears that trading platforms could be knocked out by rogue trades triggered by systems running out of control.
Trading in equities and derivatives is being driven increasingly by mathematical algorithms used in computer programs. They allow trading to take place automatically in response to market data and news, deciding when and how much to trade similar to the autopilot function in aircraft.
Analysts estimate that up to 60 per cent of trading in equity markets is driven in this way.
Concerns have been highlighted by news that NYSE Euronext, the transatlantic exchange operator, has fined Credit Suisse proprietary trading arm for the first time for failing to control its trading algorithms. In the Credit Suisse case, its system bombarded the NYSE’s systems with hundreds of thousands of “erroneous messages” in 2007, slowing down trading in 975 shares.
The case was far from isolated, say traders. CME Group, the Chicago-based futures exchange, is investigating a case this month where a trader in “mini” S&P Index futures contracts “inadvertently traded approximately 200,000 contracts as both buyer and seller”.
Jim Sinclair’s Commentary
Politics runs economics, not common sense.
Senate rejects task force to tackle deficit
Vote comes hours after new estimate of $1.35 trillion deficit for 2010
WASHINGTON – The Senate has rejected a plan backed by President Barack Obama to create a bipartisan task force to tackle the deficit this year.
The special deficit panel would have attempted to produce a plan combining tax cuts and spending curbs that would have been voted on after the midterm elections. But the plan garnered just 53 votes in the 100-member Senate, not enough because 60 votes were required. Anti-tax Republicans joined with Democrats wary of being railroaded into cutting Social Security and Medicare to reject the idea.
Obama endorsed the idea after being pressed by moderate Democrats. The proposal was an amendment to a $1.9 trillion hike in the government’s ability to borrow to finance its operations.
The defeat of the Obama-backed plan comes just hours after the Congressional BudgetOffice released its prediction of a $1.35 trillion deficit for this year.
The report sees a slow rebound of the economy, with unemployment averaging 10.1 percent this year as the economy grows by just over 2 percent. It would grow only slightly more next year with an unemployment rate of 9.5 percent.
"Economic growth in the next few years will probably be muted in the aftermath of the financial and economic turmoil," the CBO report says.
Jim Sinclair’s Commentary
The greatest success MOPE has had in the last three weeks is that it has convinced the Sheeple that Greece is more of a challenge to the euro than states of the US are to the US dollar. Fundamental reality will out.
Public Employee Unions Are Sinking California
Months after closing its last budget gap, the Golden State is $20 billion in the red.
By STEVEN GREENHUT
An old friend of mine has a saying, "Even the worm learns." Prod one several hundred times, he says, and it will learn to avoid the prodder. As California enters its annual budget drama, I can’t help but wonder if the wisdom of the elected politicians here in the state capital equals that of the earthworm.
The state is in a precarious position, with a 12.3% unemployment rate (more than two points higher than the national average) and a budget $20 billion in the red (only months after the last budget fix closed a large deficit). Productive Californians are leaving for states with less-punishing regulatory and tax regimes. Yet so far there isn’t a broad consensus to do much about those who have prodded the state into its current position: public employee unions that drive costs up and fight to block spending cuts.
Earlier this month, Gov. Arnold Schwarzenegger proposed a budget that calls for a $6.9 billion handout from Washington (unlikely to be forthcoming) and vows to protect current education funding, 40% of the state’s budget. He does want to eliminate the Calworks welfare-to-work program and enact a 5% pay cut for state employees. These are reasonable ideas, but also politically unlikely.
As the Sacramento Bee’s veteran columnist Dan Walters recently put it, the governor’s budget is "disconnected from economic and political reality." Mr. Walters suspects what will happen next: "Most likely, [the governor] and lawmakers will, to use his own phrase, ‘kick the can down the road’ with some more accounting tricks and other gimmicks, and dump the mess on whoever is ill-fated to become governor a year hence."
Mr. Walters’ Jan. 10 column was fittingly titled, "Schwarzenegger Reverts to Fantasy with Budget Proposal." Shortly before releasing his budget, the governor and Democratic state Senate President Pro Tem Darrell Steinberg held a self-congratulatory news conference. Mr. Steinberg used the spotlight to bemoan what he deemed to be unfair attacks on California. Mr. Schwarzenegger told a hokey story about his pet pig and pony working together to break into the dog’s food. It was an example, he said, of how "last year, we here in this room did some great things working together."
Jim Sinclair’s Commentary
China does the right thing for China and still gets bashed by the West.
China raises select reserve ratios.
Asian markets traded heavily down (see details below) following reports that China moved forward today with a planned increase in required reserves for some of its banks. Some banks were also told to suspend new lending for the rest of the month. In another move that surprised markets, the central bank left yields unchanged in its closely watched one-year bill sale, though analysts think this is just a pause in tightening policy and not a reversal.
