Jim Sinclair’s Commentary

This is not new news to us.

The US dollar is no safe haven from anything.

California is a greater risk than Greece, warns JP Morgan chief
Jamie Dimon, chairman of JP Morgan Chase, has warned American investors should be more worried about the risk of default of the state of California than of Greece’s current debt woes.
By James Quinn, US Business Editor in New York
Published: 8:20PM GMT 26 Feb 2010

Mr Dimon told investors at the Wall Street bank’s annual meeting that "there could be contagion" if a state the size of California, the biggest of the United States, had problems making debt repayments. "Greece itself would not be an issue for this company, nor would any other country," said Mr Dimon. "We don’t really foresee the European Union coming apart." The senior banker said that JP Morgan Chase and other US rivals are largely immune from the European debt crisis, as the risks have largely been hedged.

California however poses more of a risk, given the state’s $20bn (£13.1bn) budget deficit, which Governor Arnold Schwarzenegger is desperately trying to reduce.

Earlier this week, the state’s legislature passed bills that will cut the deficit by $2.8bn through budget cuts and other measures. However the former Hollywood film star turned politician is looking for $8.9bn of cuts over the next 16 months, and is also hoping for as much as $7bn of handouts from the federal government.

Earlier this week, John Chiang, the state’s controller, said that if a workable plan to reduce the deficit and increase cash levels is not reached soon, he will have to return to issuing IOU’s, forcing state workers to take additional unpaid leave and potentially freezing spending.

Last summer, California issued $3bn of IOU’s to creditors including residents owed tax refunds as a way of staving off a cash crisis.

"I can’t write checks without money; that’s against the law. My main goal is to keep the state afloat, but I won’t be able to do it without the help of new legislation," said Mr Chiang.

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Jim Sinclair’s Commentary

I have negotiated , I think, with the Chinese. You think healthcare was tough?

Wait until you see how this turns out.

Barack Obama faces potential Chinese death trap
Newly emboldened by his successes with health care reform and nuclear disarmament, what next for Super-Obama?
By Jeremy Warner, Assistant Editor
Published: 6:30AM BST 30 Mar 2010

From energy policy to climate change and from infrastructure renewal to Iran and the Middle East, the list of challenges is almost endless. But the three most pressing concern matters economic – trade relations with China, financial reform and deficit reduction.

The road ahead on all three is filled with pitfalls. If the US President gets any of them wrong, his supposed triumph on healthcare will soon be the forgotten flotsam and jetsam of another failed presidency.

The least contentious – financial reform – first. I say least contentious for two reasons. One is that after the worst banking crisis since the Great Depression, virtually everyone outside the banking community itself, and if the truth be known quite a few within it, accepts the need for root and branch reform. There is also already a bill passed by the Senate Committee that the Administration substantially goes along with.

The other is that America can broadly do what it likes with financial reform without fear of the consequences for its financial markets. Unlike Britain and some others, it doesn’t have to wait for international consensus or be compromised by it. No bank with international pretensions can afford not to be in the US, so whatever the US does, banks will be forced to buckle under and go along with it. The wrong approach applied unilaterally to the City, on the other hand, would risk a mass exodus of international finance.

The upshot is that financial reform in the US ought to be relatively easy. With much vital detail yet to be thrashed out, this is unfortunately proving far from the case. Broadly speaking, America seems to go along with the reform agenda set out by the G20, though signs of real engagement are still absent.

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Jim Sinclair’s Commentary

Who knows, maybe Toyota will have a miracle cure for bad drivers.

U.S. defense chief meets Japan FM on base row
2010-03-30 05:32:18

WASHINGTON, March 29 (Xinhua) — U.S. Secretary of Defense Robert Gates met Monday with visiting Japanese Foreign Minister Katsuya Okada to discuss the relocation of Futenma military base on the Okinawa island. The Pentagon said the United States respects Japan’s opinion, and is considering its proposition.

Gates and Okada met in the Pentagon. Department spokesman Bryan Whitman said the United States respects "Japan’s request to explore alternatives," on the Futenma base issue.

The Futenma base issue has caused considerable controversy in recent months between the allies, with the Democratic Party of Japan (DPJ) looking at other options other than a 2006 Status of Forces Agreement (SOFA) signed between Washington and the government of former governing Liberal Democratic Party (LDP). Under that agreement, the U.S. Futenma air facility was to be moved to a coastal area in Okinawa and away from its current urban location. Locals and some inside Japan’s governing coalition oppose the plan, saying they want the base moved out of the prefecture.

Whitman on Monday said Washington is carefully considering Japan’s "current thinking with regards to the Futenma issue," and discussions will be conducted "through diplomatic channels."

Okada is scheduled to meet with National Security Adviser James Jones and Secretary of State Hillary Clinton.

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Jim Sinclair’s Commentary

The New World Order marches forward says CIGA JB Slear, "The Gold Delivery Man."

Britain faces losing power over its own Budget under new plans for an ‘economic Government of the EU’
By Jason Groves
Last updated at 11:49 PM on 26th March 2010

Britain could be forced to have its Budget signed off by European leaders under plans to impose an ‘economic government of the EU’, it emerged yesterday.

German Chancellor Angela Merkel is pressing for ‘oversight’ of national economies to be included in controversial arrangements that were agreed by EU leaders yesterday.

She wants to introduce financial penalties for states with persistently high budget deficits, giving the EU a high degree of control.

This could see Britain forfeiting the £2billion annual ‘structural funds’ paid out to some of the nation’s poorer areas by Brussels.

Critics said the Prime Minister was the victim of ‘another Franco-German stitch-up’ that would lead to unprecedented interference in Britain’s economic affairs.

British sources yesterday insisted any new powers would apply only to the 16 countries that use the euro. But Brussels insiders said the possibility of applying sanctions to all EU states remained open.

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Jim Sinclair’s Commentary

So starts the public disgrace of states of the USA.

A-minus? They have to be kidding!

Fitch Downgrades Illinois to A-minus
Monday, March 29, 2010
By Yvette Shields

CHICAGO — Fitch Ratings late Monday downgraded Illinois’ general obligation rating one notch to A-minus and warned of possible further action by leaving the state’s credit on negative watch ahead of $1.3 billion of short- and long-term GO issuance in three deals over the coming weeks.

Gov. Pat Quinn had hoped that the General Assembly’s passage last week of pension reforms would stave off any negative rating actions and buy the state some additional time to address a nearly $13 billion budget deficit and liquidity crisis in the current legislative session.

But Fitch analysts said the state’s challenges are too severe and persistent. They believe it is unlikely the fiscal 2011 budget will “sufficiently address either the annual operating deficit or accumulated liabilities.”

The results of the current session will drive analysts’ decision as to whether Illinois holds on to its current rating level. Fitch dropped the state’s $23.4 billion of GO debt two notches down to its current level last July.

Fitch’s action follows Standard & Poor’s decision on Friday to place the state’s A-plus rating on negative CreditWatch. Moody’s Investors Service on Monday affirmed its A2 rating and negative outlook.

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Jim Sinclair’s Commentary

Neither draining, if there was a practical way which there is not, or significant rate hikes are possible.
Fed policy
Fisher says rate hikes not on the front burner

Dallas Fed President Fisher (not an FOMC voter), who is generally considered to be hawkish relative to the consensus opinion on the FOMC, delivered a balanced/consensus speech yesterday. He had this to say on the issue of interest rate increases, "The issue is not on the front burner right now." With respect to asset sales, he had this to say, "We aim to get back to the basics of holding mostly plain vanilla Treasuries-in size needed solely for conducting prudent monetary policy-on the asset side of our balance sheet. And we wish to have banks put their reserves to work, financing growth of the businesses of America, rather than piling those reserves up on the liability side of our balance sheet. Of course, we must be wary that the assets we hold are not sold into the financial system in a disruptive way and that the excess reserves held by banks on our balance sheet are not released into the system so rapidly as to create inflationary pressures."

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