Thought For The Day
Last week we heard of the great improvement in relationships between Russia and the US. some media presented it as the end to a cold war, having never reported a cold war.
From over here it looks quite different. In fact it is said that Russia and the US stand in the shadow over the war concerning the Kyrgyzstan. The coup is rumored to be Russian backed. The US stands to lose its last air base, the Manas Air Base, which is seen as CRUCIAL for fighting the Afghanistan war. The US and Russian signing of the nuclear disarmament treaty was not the great step forward that US media presented it to be.
Trader Dan’s Commentary
If you listen carefully, you can still hear the remnants of the former sales pitch: “Look, there is no way you can lose money on these things. We’ll guarantee them for you. It’s a Win-Win for everyone. Just sign here”.
Citigroup ‘Liquidity Puts’ Draw Scrutiny From Crisis Inquiry
By Bradley Keoun, Jesse Westbrook and Ian Katz
April 13 (Bloomberg) — The U.S. panel probing the financial crisis has zeroed in on Citigroup Inc. guarantees used to spur sales of mortgage-backed debt that ended up costing the bank $14 billion.
Financial Crisis Inquiry Commission investigators may conclude a primary cause of Citigroup’s 2008 bailout was the use of “liquidity puts” by traders to bolster sales, Chairman Phil Angelides said in an interview yesterday. Those puts allowed customers to sell debt securities back to the bank at face value if credit markets froze, something that Citigroup’s traders bet would never happen, according to Angelides.
Instead, Citigroup was forced to buy back $25 billion of collateralized debt obligations now valued at 33 cents on the dollar as financial markets broke down in 2007, according to the New York-based bank’s statements. The same kind of flawed logic pushed American International Group Inc. to the brink of bankruptcy in 2008 after insuring billions of dollars of CDOs against default, Angelides said.
“Institutions across a broad band were guaranteeing risks that they did not understand,” Angelides said. In Citigroup’s case, “they clearly got it wrong.”
Chief Executive Officer Charles O. “Chuck” Prince, Executive Committee Chairman Robert Rubin and regulators testified before the commission last week they didn’t know about risks posed by the instruments. The bank’s annual report for 2003 — signed by Prince and posted on the Securities and Exchange Commission’s Web site in early 2004 — disclosed the risk of “contingent liquidity facilities” tied to CDOs.
Trader Dan’s Commentary
The story speaks for itself and is symptomatic of much that ails our nation at this time. Corruption abounds in high places as virtue and ethics are tossed out the window in favor of short term financial or political gain.
Senate Probe Finds Fraud in WaMu Mortgage Lending
WaMu’s mortgage lending operations rife with fraud, Senate investigators contend
By MARCY GORDON AP Business Writer
WASHINGTON April 12, 2010
(AP) The mortgage lending operations of Washington Mutual Inc., the biggest U.S. bank ever to fail, were threaded through with fraud, Senate investigators have found.
And the bank’s own probes failed to stem the deceptive practices, the investigators said in a report on the 2008 failure of WaMu.
The panel said the bank’s pay system rewarded loan officers for the volume and speed of the subprime mortgage loans they closed on. Extra bonuses even went to loan officers who overcharged borrowers on their loans or levied stiff penalties for prepayment, according to the report being released Tuesday by the investigative panel of the Senate Homeland Security and Governmental Affairs Committee.
Sen. Carl Levin, D-Mich., the chairman, said Monday the panel won’t decide until after hearings this week whether to make a formal referral to the Justice Department for possible criminal prosecution. Justice, the FBI and the Securities and Exchange Commission opened investigations into Washington Mutual soon after its collapse in September 2008 at the height of the financial crisis.
The report said the top WaMu producers, loan officers and sales executives who made high-risk loans or packaged them into securities for sale to Wall Street, were eligible for the bank’s President’s Club, with trips to swank resorts, such as to Maui in 2005.
Trader Dan’s Commentary
No surprise here. The only surprise is that the Research Institute that did the analysis left out the United States. I love the conclusion of the study – experts say that Japan cannot avoid bankruptcy unless it issues more government bonds.
In other words, avoid bankruptcy by going even deeper into debt. Maybe it is me, but that is not exactly what I learned as a kid growing up. Perhaps the folks here that are facing foreclosure and bankruptcies merely need to take out more credit cards and run those up as a way to deal with their sad dilemma.
Japan economy at risk of ‘bankruptcy’
Sun, 11 Apr 2010 16:59:01 GMT
Analysts have warned that Japan may go bankrupt next year with a public debt figure larger than that of any other industrialized nation.
Dai-ichi Life Research Institute cautions about surging public dept of Japan, estimating that it will hit 950 trillion yen next year. That is 200 percent of the country’s GDP.
Experts say that Japan cannot avoid bankruptcy unless it issues more government bonds.
Japan has the world’s second-largest economy by nominal GDP and the third largest in purchasing power parity.
Deflation, high public debt and weak domestic demand have had a drastic impact on Tokyo’s finances. The Japanese economy shrank 5.2 percent last year.
Intermodal Slows to February Levels
John D. Boyd | Apr 8, 2010 5:57PM GMT
The Journal of Commerce Online – News Story
Largest N. American railroads also see mild braking in carload traffic.
Intermodal loadings by the major North American railroads slowed last week to the weakest levels since snowstorms rocked the freight system in early to mid-February.
The carriers, which include all of the seven Class I railroads plus some sizable regional lines that report traffic to the Association of American Railroads, originated 243,351 boxed loads in the week ending April 3. That was down from 263,169 in the March 27 week and was the lowest since Feb 6.
For just the largest U.S.-owned railroads, new intermodal shipments fell to 196,257 loads last week from 210,914 a week earlier and were the lowest since Feb. 13.
Rail freight traffic has maintained most of its recent strength, especially in carloads of bulk materials and equipment. Yet carloadings also slowed some for the North American majors, to 372,270 units in the April 3 week from 383,109 in the week ending March 27. The latest carloads are the lowest since Feb. 20.
Despite the sequential declines, traffic remains well ahead of last year. Total North American carloads last week were up 11.2 percent from the same week of the 2009 recession year, while intermodal was up 6 percent. But the latest intermodal volume fell behind its year-to-date growth pace, while carloads continued to increase their year-to-year gains.
Jim Sinclair’s Commentary
The facts are out there, but will anything be done about it?
Metal$ are in the pits
Trader blows whistle on gold & silver price manipulation
By MICHAEL GRAY
Last Updated: 4:33 AM, April 11, 2010
There is no silver lining to the activities of JPMorgan Chase and HSBC in the precious-metals market here and in London, says a 40-year veteran of the metal pits.
The banks, which do the Federal Reserve’s bidding in the metals markets, have long been the government’s lead actors in keeping down the prices of gold and silver, according to a former Goldman Sachs trader working at the London Bullion Market Association.
Maguire was scheduled to testify last week before the Commodities Futures Trade Commission, which is looking into the activities of large banks in the metals market, but was knocked off the list at the last moment. So, he went public.
Maguire — in an exclusive interview with The Post — explained JPMorgan’s role in the metals pits in both London and here, and how they can generate a profit either way the market moves.
"JPMorgan acts as an agent for the Federal Reserve; they act to halt the rise of gold and silver against the US dollar. JPMorgan is insulated from potential losses [on their short positions] by the Fed and/or the US taxpayer," Maguire said.
Jim Sinclair’s Commentary
China will do only what China wants.
China will do only what China wants when it wants.
China cannot be bullied into doing anything that hurts China.
Hu Tells Obama China Will Follow Its Own Path on Yuan (Update2)
By Edwin Chen and Rob Delaney
April 13 (Bloomberg) — President Barack Obama urged China to move toward a “more market-oriented exchange rate” and President Hu Jintao told him the country wouldn’t yield to “external pressure” in deciding when to adjust the yuan.
Any currency revaluation by China must be “based on its own economic and social-development needs,” China’s official Xinhua news agency cited Hu as saying in yesterday’s meeting with Obama in Washington. Yuan forwards fell the most in three weeks as the remarks spurred speculation the currency won’t resume gains in the short term.
Obama also expressed “his concern” about some “market- access barriers in China,” Jeff Bader, senior director for Asia at the National Security Council, told reporters after the meeting, held as world leaders gathered to discuss nuclear security.
U.S. lawmakers say the yuan peg, fixed at about 6.83 to one dollar since July, 2008, gives Chinese exporters an unfair advantage and they have been urging the Obama administration to put more pressure on China to change the policy. The two leaders’ comments left each country room to maneuver and didn’t foreclose action on China ending the peg, said Kenneth Lieberthal, who held Bader’s job under President Bill Clinton.
“Hu could have said that China feels its exchange rate is now at the right level and will not change it; he did not say that,” said Lieberthal, now a China scholar at the Brookings Institution in Washington.
Jim Sinclair’s Commentary
Last week the US put duties on Chinese steel pipe. This week China puts duties on US and Russian electrical steel.
Getting into a trade war now is as crazy as the Smoot-Hawley Tariff Act was in the 1930s.
China puts duties on US, Russian electrical steel
(AP:BEIJING) China announced antidumping duties of up to 64.8 percent on U.S. and Russian steel used by the power industry Tuesday amid a series of disputes with the United States and other trading partners.
Investigators also found U.S. producers of flat-rolled electrical steel received subsidies, the Commerce Ministry said.
"That has hurt the Chinese industry substantially," the ministry said on its Web site.
Duties of 7.8 percent were imposed on AK Steel Corp. and 19.9 percent on Allegheny Ludlum Corp., the two U.S. companies that responded to a one-year-long probe, while the rate was 64.8 percent for other U.S. producers, the ministry said. AK steel also faces anti-subsidy duties of 11.7 percent and Lodium 12 percent.
The measures took effect Saturday.
Russian producers OJSC Novolipetsk Steel and VIZ-Stal Ltd. were slapped with antidumping duties of 6.3 percent while other Russian companies were hit with a 24 percent duty.
Jim Sinclair’s Commentary
China fires forward while the West can only lick its wounds.
China plans Syncrude purchase
Monday, April 12, 2010 11:23 AM
Andrew Willis
China is about to ramp up its exposure to the oil sands, with Bloomberg reporting Monday that China Petroleum & Chemical Corp., Asia’s biggest refiner, will drop $4-billion for a 9 per cent stake in Syncrude Canada Ltd.
Sinopec is expected to grab the Syncrude position that ConocoPhillips put up for sale last October.
The move will raise eyebrows in the oil patch, as industry experts all but consigned the ConocoPhillips stake to Calgary-based Canadian Oil Sands Trust, which owns 36 per cent of Syncrude. The oil sands company claims 5.1 billion barrels of proven and probable oil reserves. The operator of this massive pioneer in the sector is Exxon Mobil subsidiary Imperial Oil.
If Bloomberg’s reporters in Hong Kong have this one right, the Sinopec investment will be the latest in a series of acquisitions in Alberta by state-owned Asian companies.
Last year, for example, PetroChina purchased majority control of two properties owned by Athabasca Oil Sands for $1.3-billion.
Jim Sinclair’s Commentary
Spain is next? Whomever it is they will be bailed out.
IMF Executive Board Approves Major Expansion of Fund’s Borrowing Arrangements to Boost Resources for Crisis Resolution
Press Release No. 10/145
April 12, 2010
The Executive Board of the International Monetary Fund (IMF) today approved a ten-fold expansion of the Fund’s New Arrangements to Borrow (NAB) and the transformation of the Fund’s premier standing credit arrangement into a more flexible and effective tool of crisis management. The NAB will be increased by SDR 333.5 billion (about US$500 billion) to SDR 367.5 billion (about US$550 billion), representing a major increase in the resources available for the Fund’s lending to its members.
This responds to the call by the leaders of the Group of 20 (G-20) economies, endorsed by the International Monetary and Financial Committee (IMFC), to increase the financing available to the Fund, through an expanded and more flexible NAB increased by up to US$500 billion. Thirteen new participants, including a number of major emerging market economies, have indicated their willingness to join 26 current participants in the NAB. The decision today follows the agreement reached by current and prospective participants at their meeting in Washington in November 2009 on the key elements of an expanded and more flexible NAB.
“The expansion and enlargement of the NAB borrowing arrangements provides a very strong multilateral foundation for the Fund’s efforts in crisis prevention and resolution, as an essential back-stop to the Fund’s quota resources. This will help ensure that the Fund has access to adequate resources to help members that are vulnerable to financial crises,” IMF Managing Director Dominique Strauss-Kahn said.
The NAB is a standing set of credit arrangements under which participants commit resources to IMF lending when these are needed to supplement quota resources. The expanded NAB will become operational when it receives formal acceptances from the required proportion of current and potential participants, which will require legislative backing in some cases.
Jim Sinclair’s Commentary
Can’t be or don’t wish them to be calculated? I will go for the latter.
"The Worst of All Worlds": Fannie and Freddie Losses "Can’t Be Calculated," Posner Says
Posted Apr 12, 2010 12:50pm EDT by Aaron Task
Government officials want you to know the cost of the bank bailout is going to be around $90 billion, much less than previously feared. But there is, as The Wall Street Journal put it, "one glaring exception" to this otherwise welcome news: The optimistic tally doesn’t include Fannie Mae and Freddie Mac.
Technically, that’s two glaring exceptions, but let’s not split hairs. The troubled mortgage giants currently enjoy an unlimited line of credit from Uncle Sam, and the CBO projects their investment portfolios — stuffed with subprime and other toxic mortgages — will suffer combined losses of $370 billion through 2020.
"I don’t think it’s time to celebrate [because] the losses inside Fannie and Freddie can’t be calculated," says Kenneth Posner, author of Stalking the Black Swan. "Not only do we have those [CBO estimated] losses but we still have $5 trillion in mortgage-backed securities that they guarantee and $2 to $3 trillion in debt. All of this is potentially on the U.S. government’s balance sheet until we figure out how to restructure these entities."
The GSE’s business model is "broken" but their role in guaranteeing mortgages is still critical to the housing market, says Posner, the former head of Morgan Stanley’s financial services research group. "Once they give their stamp of approval, those securities can then be sold and traded with great liquidity in the capital markets. If you shut that down right now, that would be counterproductive."
Instead of shuttering Fannie and Freddie and putting the nascent housing recovery at risk, he recommends auctioning the mortgage guarantee role to a group of large banks. "Make [banks] pay taxpayers for the right to issue those securities [and] let them do it with their deposits and shareholder equity."
Jim Sinclair’s Commentary
I would suggest that like other popular people who called gold the mother of all bubbles and were buying, so are these people.
Goldman Sachs cuts 2010, 2011 gold price forecasts
2010-04-12 20:10:00
Last Updated: 2010-04-13 10:19:26
Goldman Sachs cut its 2010 gold forecast to $1,165 an ounce on Monday from a previous price view of $1,265, citing a rise in real interest rates, but said it still expects to see the metal at record highs next year.
The bank also reduced its 2011 gold price forecast to $1,350 an ounce from the $1,425 it forecast in December. That is still well above gold’s current record high of $1,226.10 an ounce.
In a note dated April 12, the bank said it still expects gold prices to trend higher this year as the precious metal benefits from the overall low interest rate environment, which lifts the appeal of non-interest bearing assets like bullion.
"We expect gold prices to continue to rise from current levels as we expect real interest rates to remain low on a continuation of accommodative U.S. monetary policy," Goldman Sachs said.
"The recent rise in U.S. real rates, however, suggests that the upside for prices is more limited than we previously anticipated, and we continue to see considerable downside risk, should the U.S. Federal Reserve tighten monetary policy earlier than expected.
Jim Sinclair’s Commentary
When the Devil is in charge of Wall Street virtue is a sin.
Lehman’s secret alter-ego.
For years before its collapse, Lehman Brothers used a small company to shift investments off its books. The alter ego, a firm called Hudson Castle, appeared to be independent but was 25% owned by Lehman, which also controlled its board. Many former Lehman employees worked at Hudson Castle, and Lehman even had several transactions of over $1B with Hudson vehicles, yet none of this was ever disclosed. This sort of shadowy relationship with an alter ego company is still rampant on Wall Street, allowing banks to swap investments for cash and make their finances look stronger than they are, and doing so largely outside the reach of banking regulators.
Jim Sinclair’s Commentary
Here is a potential for more debt that will in time be monetized.
FDIC likely to extend deposit insurance.
The FDIC is expected to vote today in favor of at least a six month extension for unlimited deposit insurance on business accounts. The program was set to expire June 30. An extension would reflect continued concerns about the health of hundreds of community banks; officials worry ending the insurance coverage could cause more bank failures as businesses pull their accounts from banks they feel are in trouble.
