Jim Sinclair’s Commentary
The problem is simple. Pandora’s Box of OTC derivative credit default swaps now trade globally.
They are an effective weapon against the debt of any nation and therefore the currency of that nation. They have to be closed down globally or in terms of their effect they are open globally.
The OTC derivative is the blob that is eating the world.
Korea Tightens Currency Derivatives Rules to Cut Won Volatility
June 13, 2010, 11:02 AM EDT
By Eunkyung Seo and Frances Yoon
June 14 (Bloomberg) — South Korea aims to prevent a financial crisis by tightening rules on currency derivatives to reduce volatility in capital flows and trading of the won.
Foreign and domestic banks face lower limits on their holdings of foreign-exchange derivatives under rules recommended yesterday to President Lee Myung Bak’s regulatory reform committee, the government and central bank said in a joint statement.
South Korea joins developing nations including Taiwan, Brazil, Colombia and Russia that are tightening rules on capital flows to limit swings in their currencies. The won slumped 9.2 percent since April 1, more than double the decline in any of Asia’s other 10 most-used currencies.
“We are not limiting portfolio investment,” said Kim Yi Tae, director at the finance ministry’s foreign exchange market division. “We’re not putting regulations on trade financing, only on bank lending in foreign currencies and on forwards.”
Foreign banks will be required to cut currency derivatives holdings to 250 percent of equity capital and domestic banks to 50 percent, with three months to meet the new ceiling and two years to cover existing positions. The limit on derivatives to cover corporate settlements will be cut to 100 percent of the total, from 125 percent.
Jim Sinclair’s Commentary
33 states of the USA are headed for a stone wall at 200mph.
QE to infinity.
Illinois suffers new credit rating blow
By Nicole Bullock in New York and Hal Weitzman in Chicago
Published: June 12 2010 00:10 | Last updated: June 12 2010 00:10
Illinois’ unwillingness to tackle its budget woes prompted Fitch on Friday to become the second agency in a week to downgrade the cash-strapped state, which is likely to push up the state’s borrowing costs as it prepares to issue new debt.
Fitch lowered the rating on Illinois’ general obligation bonds from “A+” to “A” and assigned them a negative outlook, signalling it could downgrade the state further. The move came a week after Moody’s moved the state’s general obligation rating to A1 from Aa3. Standard & Poor’s rates Illinois “A+”.
“Something significant needs to happen on either side of the budget – either cutting spending or raising revenues,” said Karen Krop of Fitch. “Now they are relying on deficit borrowing.”
Ms Krop said Illinois has budgeted to raise more than $8bn with bonds in the current and next fiscal years. “There doesn’t seem to be an endgame,” she said.
Illinois’ budget situation is among the worst in the US. The state faces a $13bn budget deficit for the financial year that begins on July 1. More than $6bn of that is unpaid bills from the current year, which have prompted state prisons to let out inmates early, and the state to cut 20,000 teachers and staff.
Jim Sinclair’s Commentary
QE to infinity is becoming a global problem.
This is a camouflaged contribution not that much different in it economic implications than TARP.
India to inject $1.32 billion to 5 state-run banks
June – 12 (Reuters) – The Indian government will inject 62.11 billion rupees into five state-run banks to help meet their capital and lending needs, a government statement said on Saturday.
The support would be given to Bank of Maharashtra (BMBK.BO), Central Bank of India (CBI.BO), IDBI Bank (IDBI.BO), UCO Bank (UCBK.BO) and Union Bank of India (UNBK.BO), the statement said.
"These Banks would be able to leverage this capital and lend an additional approximate amount of Rs.77,637 crore (776.37 billion rupees) to the productive sectors of the economy giving a push to all round economic activity besides paying additional dividends and tax revenues to the Government," it said. ($1=46.84 rupees)
Jim Sinclair’s Commentary
This type of soft thinking has precedent in meat animal slaughters. It was stupid then and moronic now.
Economists consider tearing down homes to protect housing market
By Elizabeth Razzi
Saturday, June 12, 2010
Douglas Duncan, vice president and chief economist for Fannie Mae, raised a provocative idea at a recent meeting of real estate journalists in Austin: Some of the misconceived housing developments built during the boom years might have to be torn down because they don’t make financial sense.
Duncan agreed with Stan Humphries, chief economist at Zillow.com, who warned that a "tremendous shadow inventory" of homes is poised to come on the market. That includes future foreclosures (due to negative equity and continued high unemployment), homes that will end up in foreclosure after failed loan modifications, and homes from what he calls "sideline sellers" who have been biding their time until the housing market improves. Humphries said home prices won’t bottom out until the third quarter of this year, leading to "the second phase of the housing recession": below-normal price appreciation for several years. (The long-term appreciation norm is 3 to 5 percent per year.)
Said Duncan: "Some of that shadow inventory could have to be torn down. It was not economically viable when it was put in place." That includes some boom-time developments in California’s Inland Empire and Central Florida. Duncan said people might find that the cost of sustaining their lifestyle in some developments — including high transportation costs to far-away jobs — is greater than the cost of the home. That could wipe out demand.
Who would pay for tear-downs? What would happen to the people who have hung on to their homes despite the foreclosures all around them? All are unanswered questions.
