Dear Jim,

Here comes the litigation you warned about years ago. It looks more like fraud than mismanagement and the accounting firms seem to have helped every step of the way (just like Enron and Arthur Anderson). This is going to end badly (and already is). Every book of every corporation in the West is now suspect. My God, what have these people done?

Regards,
CIGA Pedro

Former Iceland bank chief hit by $2bn lawsuit
By Andrew Ward in Stockholm
Published: May 12 2010 14:20 | Last updated: May 12 2010 14:20

One of the main figures behind Iceland’s banking boom and bust has been hit by a $2bn lawsuit that accuses him of a “fraud” that contributed to the collapse of Glitnir Bank.

Jón Ásgeir Jóhannesson, the former top shareholder in Glitnir and a big investor in the UK retail sector, is alleged to have conspired with associates to defraud “Glitnir bank in order to prop up their own failing companies”.

The lawsuit, filed by the winding-up board overseeing Glitnir’s liquidation, also targets PwC, the world’s biggest accountancy firm, accusing it of “facilitating” the alleged fraud.

Neither PwC nor Mr Jóhannesson immediately responded to requests for comment.

“There is evidence supporting the allegation that Glitnir Bank was robbed from the inside,” said Steinunn Guðbjartsdóttir, chair of the Glitnir winding-up board in a statement. “Today’s [Wednesday’s] legal action is a positive step aimed at making accountable the small number of people whose intent or negligence contributed significantly to Glitnir’s demise.”

More… ^[1]

Dear Jim,

These figures are downright scary. With the dollar up as a mirror image of the euro we can anticipate this to get much larger. Gold is the only safety out there.

Regards,
CIGA Bill W.

Dear Bill W,

You are absolutely correct.

Jim

U.S. posts 19th straight monthly budget deficit
Wed May 12, 2010 3:15pm EDT

(Reuters) – The United States posted an $82.69 billion deficit in April, nearly four times the $20.91 billion shortfall registered in April 2009 and the largest on record for that month, the Treasury Department said on Wednesday.

It was more than twice the $40-billion deficit that Wall Street economists surveyed by Reuters had forecast and was striking since April marks the filing deadline for individual income taxes that are the main source of government revenue.

Department officials said that in prior years, there was a surplus during April in 43 out of the past 56 years.

The government has now posted 19 consecutive monthly budget deficits, the longest string of shortfalls on record.

For the first seven months of fiscal 2010, which ends September 30, the cumulative budget deficit totals $799.68 billion, down slightly from $802.3 billion in the comparable period of fiscal 2009.

More… ^[2]

10 Year Note Auction Results
CIGA Eric

One quarter of the accepted bids came from direct (anonymous) bidders. This was a huge jump from April and represents the highest participation rate from this group since the crisis began. The drop in primary dealer participation rate to 33% was shocking. Remember these numbers and trends the next time someone suggests the sovereign debt crisis is limited to Europe or within the euro zone.

10 Year Note Auction Results:
^[3]

Source: treasurydirect.gov ^[4]

More… ^[5]

Dear Friends;

I admit that I am a fan of Jonathan Anderson. Like Jim Sinclair he knows his subject matter intimately. This is another of his digging down and understanding pieces.

In recent years with the advent of financial TV, I have been astounded by how much market perceptions diverge from reality. That is why we strive to understand the facts behind the so called news, wherever that news has originated. One way is to read news media from around the world for more balanced reporting; a better way is to examine the economic facts and compare them to the so called news.

In my opinion, it boils down to why believe the jabber on US financial TV when it is grossly misstated and exaggerated?

Monty Guild
www.GuildInvestment.com ^[6]

Chart of the Day:
Even Dubai Isn’t Really “Dubai”
12 May 2010

The chap who said that truth is stranger than fiction died before fiction reached its present state of development.
— Elmira Star Gazette

A few months ago we published a note on China entitled Dubai Times One Thousand? (EM Daily, 24 February 2010). The idea behind the report was that you can argue about what’s going on in China’s property sector – but it doesn’t look anything remotely close to the dire situation in Dubai.

Indeed, over the past year the very word “Dubai” has become a catch-phrase in financial circles for the most pronounced kind of boom-bust disaster, conjuring up visions of grandiose but empty real estate developments littering the landscape.

Here’s the question

But after looking through EMEA regional economist Reinhard Cluse’s latest thoughts (Dubai/UAE: Where Do We Stand Now? EMEA Economic Perspectives, 31 March 2010), here’s the question: If things in Dubai are really that bad, then why do the Emirates’ macro data look so good?

To begin with, unlike the worst-affected EM countries – or, for that matter, the bulk of the advanced world – UAE banks continue to lend. Look at Chart 1 above, which shows the results of our “relevering index”, essentially the pace of new financial system credit/GDP as of end-2009 compared to the 2005 average (for further details see Delevering and Relevering, EM Daily, 3 May 2010). As you can see, new credit extension in the Emirates has slowed a good bit, but is still very much in positive territory.

Indeed, the UAE is around the middle of the pack as far as emerging markets go. And this is in sharp contrast to, say, the Baltic states or Hungary, where banks are actually withdrawing credit from the economy on a net basis.

You can see the same thing in Chart 2, which shows the actual new credit/GDP series over time. Again, the UAE is not that much different from the emerging average, and the situation is visibly better than in the advanced world.

Click here to view the full report… ^[7]