Jim Sinclair’s Commentary

Sir Richard writes about Dean Harry and the economy. Please note that I am on the same page as both Richard and Harry are. Don’t let the semantics of deflation and inflation confuse you.

March 12, 2010 – "When debt to GDP reaches 90%, as it looks like it will, growth slows and bad things happen. That’s the potential going forward, not a default." Bill Gross. managing director of PIMCO.

I just finished reading the latest mailing written by my old friend, Sir Harry Schultz of Monaco and most of the nations in Europe. Harry has lived in more countries than I can name, and he has a great international view of the world.

I first met Harry back in 1961. At that time Harry owned a string of newspapers in California. Thus, Harry was a very experienced news man. I’ve been in touch with Sir Harry for half a century. During those years Harry has written a number of books and published his international HSL report. Harry watches and covers just about everything — with special emphasis on gold. Like your editor, Harry is not optimistic about the way the world is heading.

Harry writes, "I’m convinced the US government will go bankrupt, but not tomorrow. And before they go bankrupt they’ll print more money and then you get a very high inflation rate; then it gets to depression with high inflation and eventually they’ll go to war." I might add that Marc Faber (who is now quoted everywhere) believes social obligations will cause western countries to default. Marc believes that in time all the PIIGS will default. "They just won’t be able to pay." Marc thinks all governments should raise the retirement age to 70 and cut back on social spending.

By the way, Harry Schultz has one great advantage. He publishes his voluminous reports only "when needed." Not so in the case of over-worked Richard Russell and Dennis Gartman. We both publish every day. Dennis provides so much all-around information (politics, commodities, stocks, bonds, opinions) that I don’t know how he does it — and to top it off, Dennis is a constant traveler and speaker. Amazing. Of course, Dennis is younger than I am and probably has a lot more energy than your editor.

As I’m writing, I note this really frightening news — "The US budget deficit for February was a record $221 billion "as the US boosted spending to help revive the economy." Figures show the deficit for this year will likely surpass the record $1.4 trillion in the fiscal year that ended in September."

As I’ve said before, I think the nation would have been better off in the end if the Fed and the administration had backed off and allowed the primary bear market to run to its conclusion. Sure we would have endured a vicious depression, but we would have survived. Wall Street would have suffered numerous bankruptcies and those institution that were "too big to fail" would have received their just treatment — they would have failed. We survived the 1930s, and we would have survived the 2010s. As it is, nobody is certain about what lies ahead. I see a period of deflation ahead, followed by the Fed’s frantic efforts to overcome deflation. How will the Fed fight deflation? They’ll do it "the Fed way" by quantitative easing, better known as printing money, creating more billions (trillions?) of fiat currency "out of thin air" with aid of computers

 

Jim Sinclair’s Commentary

Every US state that rolls over and every state of the EU finding itself in the same situation will be, one way or another, bailed out by means of QE to infinity.

State may cut $200m from local aid
Could result in more layoffs
By Eric Moskowitz
Globe Staff / March 13, 2010

Legislative leaders told cities and towns yesterday to brace for a cut of up to 4 percent in local aid next year, a combined hit of up to $200 million to the money communities rely on to balance budgets and keep teachers, police officers, and firefighters employed.

The announcement by House and Senate leaders could mean further layoffs and service cuts across the state starting this summer, and it sets up a political fight with Governor Deval Patrick, who sought to avoid those cuts in the budget plan he released in January.

Lawmakers say Patrick’s budget proposal for fiscal year 2011 draws too heavily on federal stimulus money and rainy-day savings. Patrick also proposed raising taxes on candy, soft drinks, and tobacco, a plan House Speaker Robert A. DeLeo and Senate President Therese Murray have said they oppose.

The announcement comes weeks before lawmakers will release their versions of the budget for the next fiscal year, which begins July 1. Beacon Hill leaders said they wanted to give early notice to cities and towns as they form their own spending plans. Lawmakers and Patrick will probably finalize the state budget in June.

Legislative leaders framed yesterday’s warning as a courtesy in a difficult year, calling the proposed cut modest amid painful circumstances. But municipal leaders called it a devastating blow, saying it could bring widespread layoffs.

More… ^[1]

Nixon calls for broad changes to cut costs
By Terry Ganey
Friday, March 12, 2010 9:02 AM CST

In the face of a state budget crisis, Gov. Jay Nixon cut another $126 million in state spending Thursday and proposed sweeping changes in government operations including consolidating state departments, eliminating another 1,000 state jobs and canceling three paid holidays for state workers.

In a speech to a business group in Springfield, Nixon also proposed the sale of unused state buildings and 2,000 state-owned automobiles as well as the elimination of some tax credits. He also endorsed changes in state pensions and health insurance for state workers, meaning more savings for state government while shifting more costs to employees.

Faced with an unprecedented drop in state revenues and the non-delivery of $300 million in anticipated federal funds, Nixon must cut about $500 million out of the budget proposed for the upcoming fiscal year. The state Budget Office announced Thursday a sharp drop in revenue projections.

"For the current fiscal year, the revised estimate is that net general revenue collections will decline to $6.73 billion, a $700 million decrease from fiscal year 2009 collections," the announcement said. "This will make the fiscal year 2010 decline the largest in history."

More… ^[2]

State police cuts in Quinn’s budget plan
By Kurt Erickson
Friday, March 12, 2010 2:29 pm

SPRINGFIELD — Gov. Pat Quinn is pushing a plan to cut the number of state troopers patrolling Illinois highways.

In an interview Friday, budget chief David Vaught confirmed that the governor’s spending plan likely would result in fewer patrols. "We’re looking at across-the-board reductions," Vaught said.

The cutbacks, which could reduce the state police payroll by more than 400 employees, are among billions of dollars in reductions planned by the governor as part of his $55 billion budget blueprint for the fiscal year beginning July 1.

More… ^[3]

Jim Sinclair’s Commentary

A different kind of unemployment.

Young war veterans returning home to unemployment
Government finds 21.1 percent unemployment rate for young veterans of Iraq, Afghanistan wars
KIMBERLY HEFLING
Mar 12, 2010 16:09 EST

The unemployment rate last year for young Iraq and Afghanistan veterans hit 21.1 percent, the Labor Department said Friday, reflecting a tough obstacle combat veterans face as they make the transition home from war.

The number was well above the 16.6 percent jobless rate for non-veterans of the same ages, 18 to 24.

As of last year, 1.9 million veterans had deployed for the wars since the Sept. 11, 2001, terrorist attacks. Some have struggled with mental health problems, addictions, and homelessness as they return home. Difficulty finding work can make the adjustment that much harder.

The just-released rate for young veterans was significantly higher than the unemployment rate of young veterans in that age group of 14.1 percent in 2008.

Many of the unemployed are members of the Guard and Reserves who have deployed multiple times, said Joseph Sharpe, director of the economic division at the American Legion. Sharpe said some come home to find their jobs have been eliminated because the company has downsized. Other companies may not want to hire someone who could deploy again or will have medical appointments because of war-related health problems, he said.

More… ^[4]

Jim Sinclair’s Commentary

The enormous challenges out there are becoming more evident to the average guy.

The yearend nonsense about the Jobless Recovery is now clearly propaganda.

The $2 Trillion Hole
By JONATHAN R. LAING

Promised pensions benefits for public-sector employees represent a massive overhang that threatens the financial future of many cities and states.

LIKE A CALIFORNIA WILDFIRE, populist rage burns over bloated executive compensation and unrepentant avarice on Wall Street.

Deserving as these targets may or may not be, most Americans have ignored at their own peril a far bigger pocket of privilege — the lush pensions that the 23 million active and retired state and local public employees, from cops and garbage collectors to city managers and teachers, have wangled from taxpayers.

Some 80% of these public employees are beneficiaries of defined-benefit plans under which monthly pension payments are guaranteed, no matter how stocks and other volatile assets backing the retirement plans …

More… ^[5]

Jim Sinclair’s Commentary

It is warfare period as the international investment banks take the position of sovereign nations.

Economic Warfare? Europe versus Wall Street
Posted on March 10, 2010 by michaelcollinsefn
By Michael Collins

(March 10) Wall Street is headed toward international pariah status thanks to two recent actions by the European Union (EU).

On Tuesday, the EU announced that it was banning Wall Street banks from the lucrative government bond business in Europe. They didn’t express official concern or fire off a warning shot. They simply banned Wall Street from financing government bond deals like the one Goldman Sachs sold to Greece. The Guardian pointed out that Wall Street bond business from European governments has gone down over the last two years. Now the business is gone period. In effect, the EU has labeled Wall Streets business tactics as too dangerous for their governments to handle.

Then on Wednesday, the President of the European Commission said that the EU was considering a ban on government debt speculation through Credit Default Swaps(CDS). President José Manuel Barroso announced that, “the Commission will examine closely the relevance of banning purely speculative naked sales on Credit Default Swaps of sovereign debt.” While not an outright ban, the threat of banning CDS on national debt would be a major loss for the world’s financial speculators, particularly those in the United States and Great Britain.

These two hostile moves toward Wall Street by Europe were discussed by officials in the context of the current Greek debt crisis. Wall Street firm Goldman Sachs has been implicated in helping the Greek government hide the true nature and size of the debt. Discovery of this sleight-of-hand action exacerbated an already challenging crisis.

While the Greek crisis was presented as the proximate cause of the anti Wall Street actions, these announcements follow a March 6 national referendum in Iceland. Citizens voted overwhelmingly, 93 to 2 percent, to reject their government’s plan to have citizens cover the losses incurred by Iceland’s second largest private bank, amounting to around $6 billion.

In January, public opinion polls showed opposition to the bailout in the mid 50% range. The 93% opposition vote Saturday was a startling and bold statement of citizen opposition to subsidies for the private sector.

More… ^[6]