Jim Sinclair’s Commentary
The US economy is driven by the levels of consumer activity.
For those that see a rosy economic future, explain this.
More consumers file for bankruptcy protection
By Christine Dugas, USA TODAY
The economic recovery effort has not slowed consumer bankruptcy filings. They surged 14% in February compared with a year earlier, according to the American Bankruptcy Institute.
The 111,693 cases filed last month also represented a 9% increase from January, the report said.
"The debt-stress overhang from years of consumer spending has a more acute impact now because of troubling economic times," says Samuel Gerdano, American Bankruptcy Institute executive director.
And that financial distress is driving more Americans to file for Chapter 7 bankruptcy, which — if approved — allows a court to discharge most unsecured consumer debt, including credit card bills.
When a stricter bankruptcy law took effect in 2005, a major goal was to require more families to rely on Chapter 13 bankruptcy, which requires filers with regular income to repay debts in full, or in part, over several years.
Jim Sinclair’s Commentary
Jobs are the key to consumer activity.
No jobs means no consumers
IBM layoffs blamed on offshoring
As many as 2,000 workers may be hit in latest round of cuts
By Patrick Thibodeau
March 2, 2010 01:36 PM ET
Computerworld – After shrinking its U.S. workforce by as many as 10,000 employees last year, IBM this week may be on its way to cutting another 2,000 workers.
IBM isn’t commenting on its latest round of cuts and information about it comes from the Alliance@IBM/CWA Local 1701, which gathers its data directly from IBM employees. The Alliance, which has blamed offshoring for many of the layoffs, has been trying to win bargaining rights for employees.
"IBM is clearly offshoring things where they can," said one IBM employee who received his notice yesterday and spoke on the condition of anonymity because he didn’t want to jeopardize his severance. A 10-year veteran and UNIX administrator, this employee said his customer support team once had 15 U.S.-based workers. That staff was reduced over time to just three workers in the U.S., with other members of the customer support team now in Brazil, Argentina and India.
The employee said he was not given a good reason for his layoff. "Higher ups made a decision that a certain percentage had to be cut – it was not performance-based at all," he said. Although the employee said he’s uncertain about the job market, "my sense is that it is not horrendous [but] I’ll have to assume that I’ll have to take a cut in pay."
As of last October, IBM employed 105,000 workers in the U.S., compared to 115,000 in 2008. In 2007, IBM had 121,000 U.S. employees. It employs about 400,000 globally.
Jim Sinclair’s Commentary
The Credit Default Swaps will attack state after state until the US dollar rolls under the previous lows as a result.
What the CDS gang takes no note of is what they are doing to the heartbeat of America or any of their other victims.
Up to 5,200 LA schools workers could face layoffs
By JACOB ADELMAN | Posted: March 2, 2010 5:25
The Los Angeles Unified School District’s board voted Tuesday to send notices of possible layoffs to nearly 5,200 teachers and other workers while urging union leaders to negotiate concessions that could make some of the cuts unnecessary.
The Board of Education members who spoke at the hearing stressed they were unanimously authorizing the notices to meet a state deadline and hoped many of the cuts to the nation’s second-largest school district’s work force could be avoided.
The state’s education code requires school districts to notify teachers by March 15 if they may not have jobs the following school year.
"What we’re voting on today can be reversed, can be mitigated, and we must do that," board member Richard Vladovic said.
The school board laid off more that 2,000 workers last year as part of a series of measures to address a persistent budget gap, which also included increasing class sizes and eliminating music and arts programs.
Jim Sinclair’s Commentary
State and city bankruptcy is nothing to take lightly.
Greece is nothing compared to California. California is only the first. Many more state will be filing.
Municipalities will be filing the terrifying Chapter 9.
15,000 S.F. workers face layoffs, shorter weeks
Heather Knight, Chronicle Staff Writer
Wednesday, March 3, 2010
More than 15,000 San Francisco city workers across all departments will receive layoff notices Friday, and most of them will have the option of being rehired to work a shorter week, Mayor Gavin Newsom said Tuesday.
Newsom’s controversial plan to help reduce the city’s $522 million budget deficit for the 2010-11 fiscal year would shift the majority of the city’s 26,000 workers from a 40-hour week to 37 1/2 hours, cutting their paychecks by 6.25 percent.
The plan is expected to save $100 million – half in the city’s general operating fund and half in money-generating departments including the port and airport – but is being decried by unions and some supervisors as a slap at the rank and file.
They also pointed to the mayor’s inability to promise that the move would spare future layoffs. Newsom said not all workers who receive layoff notices Friday will be rehired but refused to specify how many that may be.
The mayor insisted, though, that it’s a smart way to spare several thousand layoffs and ensure that workers retain jobs as the city faces its biggest budget deficit. The move to a shortened workweek would not affect employees’ health benefits, vacation or sick time.
Jim Sinclair’s Commentary
We as well as the entire Western World are falling off a cliff.
The CDS market is already decimating state debt.
Indiana puts 17th notch in revenue shortfall belt
By Eric Bradner
Posted March 2, 2010 at 11:45 p.m.
INDIANAPOLIS — Indiana now has had 17 consecutive months of bad fiscal news.
The latest revenue report on Tuesday showed the state took in $85.5 million less in taxes in February than was predicted less than three months ago.
That puts the state $869 million below what lawmakers expected when they passed the budget for the fiscal period beginning in July.
Gov. Mitch Daniels did not immediately order any budget cuts, but since it’s been 17 months since actual revenues met projections, he said further spending reductions might be necessary if revenues continue to sag.
"We’ll just have to keep looking at it. There’s not a state in the union that’s done as much as we have, and we’re not out of tricks yet," Daniels said.
Daniels in December ordered a 3.5 percent cut in K-12 education funding. The move came after he slashed state agencies’ budgets, reduced or eliminated funding for a series of programs and cut $150 million in higher education spending.
Jim Sinclair’s Commentary
New York State’s reduction of their revenue estimate is a fairy tale. It is going much lower than this figure would indicate.
NY state cuts revenue estimate by $850 million
Tue Mar 2, 5:49 pm ET
NEW YORK (Reuters) – New York Governor David Paterson and the state legislature have agreed to reduce their revenue forecast by $850 million for the next 13 months, a state report said on Tuesday.
The Democratic governor in February cut $750 million from his revenue forecast for his proposed $136 billion budget for fiscal 2011, which starts on April 1.
"The national economy, and to a greater extent, the New York economy, will experience a weak recovery which will translate into slow receipts growth," said the report on the state economic and revenue consensus estimate.
Paterson, whose ability to lead has been called into question by a probe into whether he and state troopers tried to quash a domestic violence complaint against an aide, met on Tuesday with legislative leaders to discuss the budget.
On Monday, Paterson forecast that the deficit in the new fiscal year would grow to around $9 billion from his previous estimate of $8.2 billion because a number of payments will not arrive on time, including $300 million from a slot machine vendor for the Aqueduct Racetrack.
Jim Sinclair’s Commentary
Remember the BS we were subjected to in December? How people can believe the F-TV and Wall Street Superstar crap beats me.
Economists: Another Financial Crisis on the Way
Nonpartisan Group Led by Nobel Winner Calls for Stronger Financial Reforms
By MATTHEW JAFFE
March 2, 2010
Even as many Americans still struggle to recover from the country’s worst economic downturn since the Great Depression, another crisis – one that will be even worse than the current one – is looming, according to a new report from a group of leading economists, financiers, and former federal regulators.
In the report, the panel, that includes Rob Johnson of the United Nations Commission of Experts on Finance and bailout watchdog Elizabeth Warren, warns that financial regulatory reform measures proposed by the Obama administration and Congress must be beefed up to prevent banks from continuing to engage in high risk investing that precipitated the near collapse of the U.S. economy in 2008.
The report warns that the country is now immersed in a "doomsday cycle" wherein banks use borrowed money to take massive risks in an attempt to pay big dividends to shareholders and big bonuses to management – and when the risks go wrong, the banks receive taxpayer bailouts from the government.
"Risk-taking at banks," the report cautions, "will soon be larger than ever."
Without more stringent reforms, "another crisis – a bigger crisis that weakens both our financial sector and our larger economy – is more than predictable, it is inevitable," Johnson says in the report, commissioned by the nonpartisan Roosevelt Institute.
Jim Sinclair’s Commentary
Wall Street owns Washington so initiatives like this possess little hope for cleaning up the place.
They have to keep records for tax purposes so what is this anyway.
U.S. Said to Tell Hedge Funds to Save Euro Records (Update1)
March 03, 2010, 3:52 AM EST
By Katherine Burton and David Scheer
March 3 (Bloomberg) — The U.S. is asking hedge funds not to destroy trading records on euro bets, according to a person with knowledge of the requests, as Europe and the U.S. step up scrutiny of the funds’ role in the Greek debt crisis.
The Department of Justice sent requests to save the records to at least some of the hedge funds whose executives attended a dinner hosted by New York-based research and brokerage firm Monness, Crespi, Hardt & Co. on Feb. 8, said the person, who declined to be identified because the information is private.
“It is clear in the current environment, and likely for a long time going forward, any entity that profits from another’s misfortune, in this case hedge funds versus Greece and the euro zone, risks being the target of public backlash, or worse, government retaliation,” said Kirby Daley, a senior strategist in Hong Kong with Newedge Group’s prime brokerage business.
Aaron Cowen, an executive at SAC Capital Advisors LP, David Einhorn, head of Greenlight Capital LLC, and Don Morgan, who runs Brigade Capital Management LLC, attended the dinner, as did a representative from Soros Fund Management LLC, the Wall Street Journal said Feb. 25.
Greece’s Woes
Spokespeople for the hedge funds declined to comment or didn’t return calls seeking a comment. Neil Crespi, president of Monness Crespi, couldn’t be reached for comment. Gina Talamona, a Department of Justice spokeswoman, declined to comment. The requests were reported earlier yesterday by CNBC.
Jim Sinclair’s Commentary
If the Fed fails to Expand QE to infinity then the Fed will be history.
Obama-fying The Fed?
Brian Wingfield, 03.02.10, 07:07 PM EST
Congress and K Street are the real threats to reshape the central bank, not the president.
WASHINGTON — With big changes afoot at the Federal Reserve, the nation’s capital is suddenly abuzz with chatter that President Barack Obama will have significant influence over the central bank’s future.
Not only is Congress considering shaking up the Fed’s regulatory duties, Obama will have the opportunity to appoint three new members of the bank’s Board of Governors, due to two vacancies and the recent announcement that Fed Vice Chairman Donald Kohn will step down in June.
But talk about the administration’s influence is overblown, says former Dallas Fed President (and Forbes.com contributor) Bob McTeer. "It’s been my experience that once somebody comes to the Board of Governors, they sort of become technocrats," he says, adding that most decisions by the board are made after much discussion by the governors and briefings by well-informed Fed staff. "I think the fact that Obama will be making the appointments will not make a lot of difference."
In fact, more influence over the central bank is likely to lie with lobbyists and lawmakers. Members of the Senate Banking Committee have been considering a deal that would establish a consumer protection division–headed by a political appointee–within the Federal Reserve. Such an agreement would keep financial products and banks under the same regulator, a position supported by the Financial Services Roundtable, an industry group whose members include heavyweights like Bank of America, Citigroup and Nationwide.
But K Street is also eyeing the compromise with caution, for a variety of reasons. Ryan McKee, senior director of the U.S. Chamber of Commerce’s Center for Capital Markets, says the chamber is concerned about overlapping authority with other regulators, no matter which agency houses the consumer protection agency. John Taylor, president and chief executive of the National Community Reinvestment Coalition, calls the plan a "waste of taxpayers’ money" since the Fed has a track record of laxity in enforcing its existing authority.
Jim Sinclair’s Commentary
The US economy is consumer based.
Consumer confidence still struggling.
ABC’s Consumer Comfort Index came in at -49, just slightly better than last week’s -50. However, the individual components still aren’t pretty: Like last week, just 8% of Americans rate the national economy positively, and only 24% think it’s a good time to buy things. Those rating personal finances positively inched up to 44% from 43%
Jim Sinclair’s Commentary
CIT is the factor to middle American and middle/lower tier businesses.
If CIT lacks the means to make the factor then middle America is thoroughly screwed.
They do not, yet the equity guys are bulls forgetting the FASB gift of mark up.
CIT Emerges From Bankruptcy: Where to Next?
March 02, 2010
CIT Group (CIT) emerged out of bankruptcy yesterday. There is no balance sheet out yet. Heck, people don’t even know what the share count is – for that you need to read the bankruptcy filing 8-K.
Total share count = 200 mn
Share Price = $28
WSJ is saying that $11bn of debt has been wiped out. That is on top of $5bn of pref and equity interests that have been wiped out. So, in total $16bn has been wiped out on a book of $64bn.
The books have to be restated at fair value. Even if there is a 15% write off of the book so that $10bn of loans are written down, there should be tangible book value left. And after that, because there wont be any more provisions to take, CIT will report eye-popping earning numbers. This is like the Wells Fargo (WFC) – Wachovia (WB) situation from a year
Jim Sinclair’s Commentary
Today we are going to bail out Greece. Let’s see what tomorrow brings.
IMF Welcomes Greece’s ‘Very Strong’ Fiscal Package (Update1)
March 03, 2010, 12:59 PM EST
By Sandrine Rastello
March 3 (Bloomberg) — The International Monetary Fund praised the Greek government’s 4.8 billion euros ($6.6 billion) of additional deficit cuts announced today and said it stands ready to share “technical expertise.”
“The authorities have put together a very strong fiscal package for 2010,” IMF spokeswoman Caroline Atkinson said in an e-mailed statement today. “The implementation of the fiscal program will be a crucial step forward in a multi-year process.”
Greek Premier George Papandreou is risking a backlash at home to meet European Union demands for more deficit cuts before allies would come to Greece’s aid. Greek bonds rose to their highest in three weeks on the measures, including higher fuel, tobacco and sales taxes.
The IMF, which sent a staff member to Athens last week at the request of European and Greek officials, stands ready to “support the implementation of the authorities’ plans by sharing our technical expertise in these matters,” Atkinson said.
IMF Managing Director Dominique Strauss-Kahn has expressed confidence the EU would resolve Greece’s fiscal problems without outside aid and reiterated that the IMF can provide financial help if it’s requested.
Jim Sinclair’s Commentary
What a novel idea. A CEO should have his own money on the line, but realistically how many do currently or will ever?
How many good people were there in Sodom and Gomorrah?
Does the speaker have his own money on the line? It does not count if you got your stock from options. That is not money on the line. Money on the line is shares bought at or above market prices.
Buffett vents on financial fat cats
By Colin Barr, senior writerMarch 1, 2010: 11:55 AM ET
NEW YORK (Fortune) — Warren Buffett has an elegant solution for the thorny problem of too-big-to-fail banks: Put the bankers’ bank accounts on the line.
Buffett, the chairman of Berkshire Hathaway (BRKA, Fortune 500), lashed out at the damage wrought by overpaid, unaccountable finance-industry bigwigs in his annual letter to Berkshire shareholders, released Saturday.
Buffett has been criticizing overreaching corporate managers and complaisant directors for decades. But the question of how to motivate good corporate behavior has taken on new weight as Washington debates reining in the financial giants whose missteps brought the economy to its knees two years ago.
The Obama administration last month proposed separating banks’ proprietary trading activities from their federally subsidized deposit-gathering and lending ones. Other proposed rules would increase the amount of capital banks hold against losses and how much cash they carry to deal with a surge of withdrawals.
But Buffett said there’s a simpler way to cap risk-taking: Forcing lavishly compensated CEOs to take responsibility for assessing the risks at their firms — and putting their own wealth at stake, to boot.
Jim Sinclair’s Commentary
Today we are going to bail out Greece. Let’s see what tomorrow brings.
IMF Welcomes Greece’s ‘Very Strong’ Fiscal Package (Update1)
March 03, 2010, 12:59 PM EST
By Sandrine Rastello
March 3 (Bloomberg) — The International Monetary Fund praised the Greek government’s 4.8 billion euros ($6.6 billion) of additional deficit cuts announced today and said it stands ready to share “technical expertise.”
“The authorities have put together a very strong fiscal package for 2010,” IMF spokeswoman Caroline Atkinson said in an e-mailed statement today. “The implementation of the fiscal program will be a crucial step forward in a multi-year process.”
Greek Premier George Papandreou is risking a backlash at home to meet European Union demands for more deficit cuts before allies would come to Greece’s aid. Greek bonds rose to their highest in three weeks on the measures, including higher fuel, tobacco and sales taxes.
The IMF, which sent a staff member to Athens last week at the request of European and Greek officials, stands ready to “support the implementation of the authorities’ plans by sharing our technical expertise in these matters,” Atkinson said.
IMF Managing Director Dominique Strauss-Kahn has expressed confidence the EU would resolve Greece’s fiscal problems without outside aid and reiterated that the IMF can provide financial help if it’s requested.
Jim Sinclair’s Commentary
What a novel idea. A CEO should have his own money on the line, but realistically how many do currently or will ever?
How many good people were there in Sodom and Gomorrah?
Does the speaker have his own money on the line? It does not count if you got your stock from options. That is not money on the line. Money on the line is shares bought at or above market prices.
Buffett vents on financial fat cats
By Colin Barr, senior writerMarch 1, 2010: 11:55 AM ET
![clip_image001[4]](http://jsmineset.com/wp-content/uploads/2010/03/clip_image00141.jpg "clip_image001[4]")
NEW YORK (Fortune) — Warren Buffett has an elegant solution for the thorny problem of too-big-to-fail banks: Put the bankers’ bank accounts on the line.
Buffett, the chairman of Berkshire Hathaway (BRKA, Fortune 500), lashed out at the damage wrought by overpaid, unaccountable finance-industry bigwigs in his annual letter to Berkshire shareholders, released Saturday.
Buffett has been criticizing overreaching corporate managers and complaisant directors for decades. But the question of how to motivate good corporate behavior has taken on new weight as Washington debates reining in the financial giants whose missteps brought the economy to its knees two years ago.
The Obama administration last month proposed separating banks’ proprietary trading activities from their federally subsidized deposit-gathering and lending ones. Other proposed rules would increase the amount of capital banks hold against losses and how much cash they carry to deal with a surge of withdrawals.
But Buffett said there’s a simpler way to cap risk-taking: Forcing lavishly compensated CEOs to take responsibility for assessing the risks at their firms — and putting their own wealth at stake, to boot.
Jim Sinclair’s Commentary
The FDIC is to enter the OTC derivative business by securitizing acquired assets from bankruptcy. This is an interesting solution to a problem brought on by securitizing assets.
"FDIC sources confirmed to HousingWire in January a move to consider securitizing assets seized from failed banks and depository institutions. The Securities Industry and Financial Markets Association (SIFMA) called it “an attempt to restart the stalled securitization markets.”"
FDIC Guarantees $1.8bn of Structured Financing on Failed Bank Assets
by DIANA GOLOBAY
Wednesday, March 3rd, 2010, 2:11 pm
Guidance is out on a forthcoming issue of structured notes from the Federal Deposit Insurance Corp. (FDIC).
The issue, which is expected to be backed by private-label mortgage-backed securities (MBS) acquired through depository bank failure receiverships, is expected to launch and price this week.
One class of notes worth $1.33bn is said to be at 65bps over Libor, while the class of $480m of notes range at swaps plus 90 to 95bps, according to price guidance provided to HousingWire.
The issue bears a 100% FDIC guarantee, meaning it bears the full faith and credit of the US.
Sources confirm that Barclays Capital is lead arranger on the deal though the official release of information remains restricted.
Jim Sinclair’s Commentary
The FDIC is going to cure the problem below by securitizing seized assets and selling them to the public. We are truly lost!
An Easily Understandable Explanation of the Derivatives Markets
Heidi is the proprietor of a bar in Detroit. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with new marketing plan that allows her customers to drink now, but pay later.
She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).
Word gets around about Heidi’s "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Heidi’s bar. Soon she has the largest sales volume for any bar in Detroit.
By providing her customers’ freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi’s gross sales volume increases massively.
A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi’s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.
At the bank’s corporate headquarters, expert traders transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don’t really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics.
Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.
One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi’s bar. He so informs Heidi.
Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since, Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.
Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.
The suppliers of Heidi’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.
Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion dollar no-strings attached cash infusion from the Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers.
Now, do you understand?
