Dear CIGAs,
The gold buzz today was CDS winners demanding payment in gold.
The major weakness of this thought is you can’t demand anything except what the contract calls for at inception.
Novation or unilateral changing or cancelling of a contract is against contract law internationally. This sounds good but lacks legality and functionality.
Nobody knows what collateral if any is required between counter parties trading CDS OTC derivatives.
Yes gold is good collateral for anything and accepted by some exchanges, but it is one hell of a reach to consider all CDS transactions to have gold as collateral. They simply do not.
Jim Sinclair’s Commentary
Factor this article into today’s assumption that the Fed was going reverse repo with the money market funds to drain excess liquidity.
Note the attention today of the Fed’s Sack to the important concept when discussing the sale of the junk the banks stuck the Fed with and how it "should limit any uptick in interest rates from the sales."
Today the Fed MOPEs about draining excess liquidity via reverse repos. If this was enacted it would send interest rates soaring regardless of the economic condition when initiated.
Another interesting point to consider is that if you add all the cash of all money funds together, less losses on inventory, there isn’t enough money there if you used reverse repos to drain the trillions in excess liquidity. Despite this fact, both professionals and public alike buy this illogical propaganda and run with it, making so many gold people question their commitment.
Fed’s Sack backs passive strategy for asset sales
By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) — The "crucial" message from the Federal Reserve to financial markets is that any potential asset sales from the central bank’s enormous holdings of mortgage-backed securities will come in a gradual and passive manner, the No. 2 official at the New York Federal Reserve Bank said Monday.
In a speech to the National Association for Business Economics, the New York Fed’s Brian Sack remarked that this go-slow approach would be easier for the market to digest and should limit any uptick in interest rates from the sales.
To assist frozen credit markets and keep long-term interest rates low, the Fed has amassed a balance sheet of $2 trillion though purchase of government securities and mortgage-backed securities
The central bank also has kept interest rates near zero for more than a year.
Now that financial crisis has eased, the Fed is looking for the exit. This cycle will be more complicated because the Fed wants to hike rates and reduce its balance sheet. Fed watchers are scratching their heads about which move will come first.
Jim Sinclair’s Commentary
John Embry on Gold and Gold shares.
John Embry: As Confidence Returns, Gold Will Rise
Source: Interviewed by Gordon Holmes, The Gold Report 03/08/2010
The Gold Report caught up with John Embry, Chief Investment Strategist, Sprott Asset Management, to get his thoughts on gold and some mining stocks he favors. Embry, an industry expert in precious metals, has researched the gold sector for over 30 years. Read about why he thinks gold could gain another 30% this year as a greater proportion of the public realizes the degree of difficulty that sovereign debt is in. He believes as confidence in gold returns people will seek an outlet in gold stocks, especially small-cap gold producers and junior explorers with solid projects.
The Gold Report: John, in Investors Digest of Canada you recently said you’re expecting gold to gain another 30% this year.
John Embry: I would say at least 30%. I said that I thought it would be the best year to date. We’ve had nine years consecutive higher year-end prices and the best year in that span for a year’s return was 31%. I think this will be the year that we exceed it in this, the 10th year of the bull market.
TGR: What’s driving this? Why is this year going to be the best year?
JE: I think we’re getting very close to the point when a greater proportion of the public realizes the degree of difficulty that sovereign debt is in. And at that point, when you can’t depend on your government paper as a safe haven, I think that fact puts gold in a much better light in more people’s eyes.
TGR: You might say the first leg down were the individuals who couldn’t pay their mortgages and that caused part of the ’08 collapse. And now it looks like it’s the government’s.
Jim Sinclair’s Commentary
You might think that governments have caught on to the Blitzkrieg (CDS OTC derivative) utilized by today’s Financial Reich.
What difference does it make if you bomb Greece to its knees or just break them financially?
With Wall Street in possession of Washington, it will be interesting to see what, if anything, is done about OTC derivatives. Without exception, these are weapons of mass financial destruction.
OTC derivatives are the basis for the present crisis and nothing has been done to curtail them. Therefore, nothing has been done to correct the problem at all.
The crisis is not over at all.
Greece’s Leader Wants to Restrict Speculative Trading
By SEWELL CHAN
Published: March 8, 2010
WASHINGTON — The Greek prime minister on Monday called on the United States and the European Union to crack down on speculative trading, saying that exotic market bets had driven up Greece’s borrowing costs and threatened its effort to ease its debt crisis.
“We will have a very hard time implementing our reform program if the gains from our austerity measures are simply swallowed up by prohibitive interest rates,” the prime minister, George A. Papandreou, said in a speech at the Brookings Institution, at the start of a visit that will include a meeting with President Obama on Tuesday.
In a brief interview after the speech, Mr. Papandreou said he would not rule out turning to the International Monetary Fund for financial assistance, but he expressed hope that such aid, which would be unprecedented in the euro zone, would be unnecessary.
Mr. Papandreou said his meetings in the last few days with Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France showed that “there is a will for creating some ad hoc mechanism” that would help the country borrow at reasonable costs.
While Greece successfully sold 5 million euros in bonds last week, it has about 20 million euros worth of debt maturing in April and May.
“We haven’t asked for money,” Mr. Papandreou said. “We haven’t asked for a bailout.” What Greece wants, he said, is the ability to “borrow at somewhat similar rates” as other European Union countries, and particularly in the euro zone.
Jim Sinclair’s Commentary
The up and coming central bank of central banks has spoken.
As long as the CDS market is wide open for business the Blitzkrieg of the financial Reich will continue.
Greek Debt Problems Unlikely to Spread: IMF Head
Published: Monday, 8 Mar 2010 | 3:00 AM ET
The crisis over Greece’s debt mountain is unlikely to spread to other euro zone countries with high levels of public debt, International Monetary Fund (IMF) managing director Dominique Strauss-Kahn said on Monday.
In an interview with Reuters in the Kenyan capital, Nairobi, Strauss-Kahn dismissed market speculation of potential default by other heavily indebted euro zone countries such as Portugal, Spain or Ireland as scare-mongering.
"You can add to the list all of the countries in the euro zone, to try to scare people about everything. I don’t think it will happen," he said. "We have a problem with Greece. We don’t have a problem with Spain to date. The euro zone has to deal with the Greek problem. They are doing this. No one knows what’s going to happen tomorrow morning but there’s no reason why the spillover to Portugal or to Spain will take place."
Separately, Strauss-Kahn, who is on a tour of Kenya, South Africa and Zambia to see how the poorest continent has bounced back from last year’s global economic crisis, said he was confident euro zone countries could handle the Greek debt maelstrom.
Greek Prime Minister George Papandreou said last week he might have to go to the IMF to meet debt obligations falling due in April if the European Union did not help with funds. It would be the first bailout in the history of the euro.
Jim Sinclair’s Commentary
The major client for these has been the denizens of Wall Street with the FDIC sharing losses, or should I say functionally guaranteeing against losses.
Failed Banks May Get Pension-Fund Backing as FDIC Seeks Cash
March 08, 2010, 1:00 PM EST
By Dakin Campbell
March 8 (Bloomberg) — The Federal Deposit Insurance Corp. is trying to encourage public retirement funds that control more than $2 trillion to buy all or part of failed lenders, taking a more direct role in propping up the banking system, said people briefed on the matter.
Direct investments may allow funds such as those in Oregon, New Jersey and California to cut fees for private-equity managers, and the agency to get better prices for distressed assets, the people said. They declined to be identified because talks with regulators are confidential.
Oregon’s retirement fund may contribute $100 million as regulators seek “the support of state pension funds to solve the crisis surrounding ongoing bank failures,” Jay Fewel, a senior investment officer at the Oregon State Treasury, said in a presentation at the fund’s Feb. 24 meeting. New Jersey’s fund may also participate, said Orin Kramer, chairman of New Jersey’s State Investment Council.
The FDIC shuttered 140 lenders last year and expects the tally may be higher in 2010. Regulators have avoided signing up private-equity firms as rescuers on concern that they might take too much risk. Pension funds, whose 100 largest members manage $2.4 trillion, could provide capital to acquire deposits and outstanding loans from collapsed banks, according to the people.
Jim Sinclair’s Commentary
The US, state by state and most unfortunately, are going down according to the Formula of 2006.
No amount of media hype can prevent this.
Nevada lawmakers’ reliance on temporary fixes creates $3 billion hole
By Anjeanette Damon • March 7, 2010
In the nearly three years since Nevada’s economy crashed, lawmakers have scrapped together a patchwork of temporary fixes to the state budget, hoping an eventual recovery would rescue them from being forced to make permanent choices on how they tax and what they spend.
But the economy didn’t get better. It got worse.
The result: Lawmakers will now face a nearly a $3 billion hole in a roughly $6 billion budget when they return to Carson City next year. And the temporary fixes have all been used up.
"The stuff we just went through is easy compared to what we face in the next regular session," state budget director Andrew Clinger said of the special session that ended last week. "What we just did was not easy, but relatively speaking, the task we have in front of us is 10 times what we just did."
Some argue the enormity of the hole, coupled with cuts that will bite a wider swath of Nevadans will force lawmakers to face permanent reform, weaning the state from its dependence on a single industry for more than half of its revenue.
Jim Sinclair’s Commentary
The hype today was that since the Chairman was approved to maintain his position, the Fed re-established its power.
The real story is QE to infinity or the Fed is history.
Battle Inside Fed Rages Over Bank Regulation
By JON HILSENRATH
MARCH 8, 2010
The worst of the banking crisis may be long over, but the political contest over the Federal Reserve is entering a crucial phase in which its personality and role will almost certainly be redefined.
The Fed has tried to fend off very public efforts in Congress to strip it of responsibility for regulating America’s banks, but a less-visible battle has been playing out inside the central bank. The Fed has undertaken a wrenching reorganization of its army of 3,000 bank supervisors, which has centralized more power in Washington and sometimes pitted officials at the 12 regional Fed banks against those in the capital.
Fissures at the central bank boiled over last year in a meeting in the boardroom of a Fed branch office in Memphis. The presidents of the regional banks, which dot the country from Boston to San Francisco, complained to Fed Vice Chairman Donald Kohn that the Fed’s Washington bank-supervision group was adrift and not providing the district banks needed guidance on how to navigate a worsening banking crisis. Soon, though, Washington was more involved than ever. In one example: The Atlanta Fed was subjected to an especially thorough critical review of its performance as a regulator because of the large number of bank failures in the Southeast.
"The stress level of the past few years has been pretty high," says William Estes, 60 years old, who retired as head of the Atlanta Fed’s bank-supervision group. The group has since been reorganized. "At a certain point you’ve just had enough."
Though partly a turf war, the fight over—and within—the Fed is much more than that. It is part of a broad battle over how America’s financial system should be regulated, still unresolved 18 months after it stood at the brink. The ultimate outcome could shape finance as much as anything since the 1930s, when the Federal Deposit Insurance Corp. was created, or the 1990s, when banks gained freedom to cross state lines and build trading desks to compete with Wall Street.
Jim Sinclair’s Commentary
The plight of the states of the USA will guarantee the jobless part of the so called recovery.
Bleak future predicted for Michigan schools
By CHRIS CHRISTOFF
Posted: 12:06 p.m. March 8, 2010
LANSING – Michigan public schools will lay off thousands of employees and more than 100 districts could be insolvent if the state doesn’t find a way to plug a $400-per-pupil funding shortfall in funding next year.
That assessment comes today from a coalition of education groups that urged the Legislature to resolve what they call a school funding crisis by July 1, the start of a new fiscal year for schools.
Save Our Students (SOS), a coalition of 17 associations that represent school and school officials statewide, released results of a survey of 300 of the state’s 540 school districts that paints a bleak picture of 4,000 additional layoffs statewide next year, school closures and elimination of programs.
The survey indicates 47 school districts could deplete their fund reserves this year, and another 60 to 80 could do so next year, said David Martell, executive director of Michigan School Business Officials. Emptying reserves could result in insolvency, Martell said.
Tom White, SOS chairman, gave 50-50 odds that the Legislature will tackle the school funding issue in a timely manner.
Thought For The Day:
When you see the CRIMEX operating the price of gold on the hogwash of draining excess liquidity from the system please recall the statement of our two CIGAs at the Toronto meeting.
One was from Poland and the other from Russia. They had not come together. Each stood up and said how it is possible that people do not see the signs everywhere.
The handwriting is on the wall. This is exactly what we saw in Russia and Poland before the great inflation.
Keep in mind that hyperinflation is a currency event, not an economic event.
Jim Sinclair’s Commentary
The US Treasury and Federal Reserve have guaranteed more than they can ever perform on at present dollar value. That is a trigger to QE to Infinity.
Frank retreats on debt
By PAUL THARP
Last Updated: 3:30 AM, March 6, 2010
Powerful lawmaker Barney Frank had to pull his foot out of his mouth yesterday.
The Massachusetts Congressman rattled investors when he said the US Treasury won’t be responsible for bailing out investors holding the more than $5 trillion of mortgage-linked securities issued by Fannie Mae and Freddie Mac — the ailing mortgage companies at the center of the junk mortgage crisis.
"Please don’t think this [debt] is federally guaranteed, I don’t think it is, I don’t think it should be, I don’t feel any obligation to bail you out," he said. In a restructuring of the firms, investors could expect a "whole range of options. . . from [being paid] nothing to a haircut to whatever."
Hours later, the Treasury rejected Frank’s views, saying it stands behind its unusual Christmas Eve pledge to back the securities with unlimited funds. After the rebuke, Frank, chairman of the powerful House Financial Services Committee, then backpedaled from his statement in hopes of cooling any possible volatility in trading next week.
But even in backtracking, Frank was defiant. "I have noted that Fannie and Freddie debt did not have the same legal standing as Treasury debt. This does not prevent the Treasury from treating the debt of Fannie and Freddie in the manner that it believes best supports the important goal of stabilizing the financial system."
More…
Jim Sinclair’s Commentary
Questions:
1. What exactly does the Fed wants to repo to money funds? The recent initiative was for the junk it had bought from the failing banks.
2. They might believe the jobless recovery and new normal, but any attempts to drain will be met by a surge in interest rates and a lower low in the economy. That makes draining impractical in a political sense.
In Conclusion:
There is no PRACTICAL means of draining the huge liquidity injected into the system.
Fed to Include Money Funds for Reverse Repos (Update1)
By Liz Capo McCormick
March 8 (Bloomberg) — The Federal Reserve Bank of New York said it will expand the number of counterparties used when the central bank begins to drain the record amount of cash added to the financial system to include domestic money market funds.
The additional firms to be used for reverse repurchase agreements are “intended to enhance the capacity of such operations to drain reserves beyond what could likely be conducted through” the use of the central bank’s 18 primary dealers, the New York Fed said in a statement today. The firms won’t be eligible to participate in other transactions conducted by the New York Fed.
“This is another step in the laying of the groundwork in what will eventually become policy normalization,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York. “The private markets have long known the Fed would have to expand eligible counterparties. It’s a good thing in the respect that the Fed recognizes that they have to do this.”
Fed policy makers are debating how to withdraw the emergency programs aimed at reviving the economy without disrupting financial markets or bank liquidity as the recovery gains strength. Along with raising the overnight bank lending rate, Fed officials have said they may use reverse repos, pay interest on excess bank reserves and sell securities directly to investors to withdraw or neutralize cash in the banking system.
Counterparty Criteria
In a reverse repo, the Fed lends securities for a set period, draining cash from the banking system. At maturity, the securities are returned to the Fed, and the cash to the primary dealers.
More…
Jim Sinclair’s Commentary
When you buy on to the Fed doing reverse repos to drain excess liquidity utilizing money market funds, how practical can any draining be in the following circumstance.
U.S., China In Chess Game Over Debt
Expert: China ‘lacks the flexibility to wield any influence’
Gary Feuerberg
WASHINGTON—Last month, the U.S. Treasury Dept. revealed that China sold a record amount of Treasury bonds last December, raising a question over how China—a top hold of U.S. debt—could potentially alter the fortune of the U.S. economy.
Economists are increasingly worried over the nation’s dependency on China to finance its debt, and China’s recent signals that it may be shifting away from the U.S. dollar as a reserve currency. In addition, China is notorious for actively manipulating the value of its currency to sustain wide trade imbalances with developed nations.
“China has pursued mercantilist policies to promote its interests and increase our dependence on their production and their capital … China has emerged from the global recession stronger than ever, expecting its status as America’s banker to convey new political power,” said Michael Wessel in his opening remarks at the U.S.-China Economic and Security Review Commission last month. “The United States government … cannot easily extricate itself from its growing financial dependence on China.”
Wessel’s statement set the general tone for the hearing, but most of the experts who testified took exception to the notion that China is “America’s banker.”
“While the exact amount is not knowable based on publicly available information, a reasonable working assumption would be that China owns close to $1 trillion of U.S. Treasury securities,” testified Dr. Simon Johnson from the Peterson Institute for International Economics.
More…
