Jim,

More viewpoints on the foreclosure mess. Estimated cost of litigation to date is $10 billion.

CIGA Black Swan

Dear CIGA Black Swan,

QE to infinity is not debatable. It is the only tool the Fed has to kick the can down the road one more time, but at what cost?

Regards,
Jim

Stock Selloff Adds to Pressure on Banks to Fix Foreclosure Mess
By Dakin Campbell and Christine Harper – Oct 15, 2010 5:36 AM ET

U.S. banks and government officials face mounting pressure to address concern that firms mishandled mortgage and foreclosure documents.

Shares of Bank of America Corp. and Wells Fargo & Co. yesterday fell the most in more than two months amid uncertainty about defective mortgages. Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, raised his estimate for the cost of litigation and delays to banks to $10 billion yesterday from $6 billion.

An investigation by attorneys general in all 50 states into banks’ foreclosure practices fueled speculation about even greater losses if mortgage-bond investors successfully challenge the underlying loans and force lenders to buy them back. Industry experts also said faulty foreclosures may lead banks to agree to principal writedowns.

“The nation has been in denial about the scope of the problem, and it’s now just being revealed,” said Janet Tavakoli, founder of Chicago-based Tavakoli Structured Finance Inc., a financial consulting firm, in a phone interview. “This is a huge crisis for our country.”

More… ^[1]

 

Jim Sinclair’s Commentary

Monty issues a warning, yet is bullish on copper and silver.

Dear Jim,

Mexico is in trouble and here is another data point.

Respectfully yours,
Monty

Drug gangs threaten Mexican mining industry
Thursday, October 14, 2010
By Mica Rosenberg

MEXICO CITY | Thu Oct 14, 2010 7:52pm EDT

MEXICO CITY (Reuters) – Mining firms have shuttered a handful of exploration projects in remote areas of Mexico as the industry grapples with threats from drug cartels and rising security costs, Mexico’s mining chamber said on Thursday.

Cartels are threatening mining operations not just in the violent corridor along the U.S.-Mexico border but in isolated, mountainous regions in other parts of Mexico, where traffickers grow marijuana and heroin poppies, the chamber said.

Executives belonging to Mexico’s National Mining Chamber have reported cases of drug traffickers extorting, kidnapping, attacking and selling drugs to their workers.

Theft of precious metals is on the rise in Mexico, executives said. The government also said this week it caught one cartel member selling iron ore to firms exporting to China.

More… ^[2]

Government reports $1.3 trillion budget deficit
CIGA Eric

The Obama administration said Friday the federal deficit hit a near-record $1.3 trillion for the just-completed budget year.

The following charts illustrate falling real revenues and surging outlays relative to revenues. While “the formula ^[3]” has taken a back seat in recent months to other headlines, its consequences remain omnipresent through the local, state, and federal sector.

If you think gold has seen its run, my response is not a chance.

Real or Gold Adjusted Federal Total Receipts 12-Month Moving Average (TR12MA) AND Federal Total Receipts 12-Month Moving Average Year-over-Year Change (TW12MA12LN):
^[4]

US Federal Budget (Surplus or Deficit As A % of GDP, 12 Month Moving Average) and Gold London P.M. Fixed:
^[5]

Source: news.yahoo.com ^[6]
Source: fms.treas.gov ^[7]

More… ^[8]

Mortgage Mess May Costs Big Banks Billions
CIGA Eric

One billion dollars? Six billion? Ten billion? More?

After scratching their heads for weeks over how much the foreclosure mess will hurt banks’ bottom lines, investors got out their calculators Thursday to tally the potential costs — and sent bank stocks plunging.

The markets are beginning to discount the growing balance sheet problems presented by what is being characterized as the second wave of the mortgage crisis.

The counter trend rally of banking stocks relative to the stock market (S&P 500) and gold ended in July and May of 2010, respectively. The break of the counter trend rally was the first sign of trouble.

The resumption of the downtrend which began to accelerate in 2007 is far more pronounced in the banking stock to gold ratio. The breach of the December 2009 swing low suggests a retest of the March 2009 panic low.

Capital, always balancing reward relative to risk, senses that the fuse on the powder keg has been lit. Perhaps the Fed’s announcement MOPE and measured liquidity is not enough? If so, is the market beginning to discount the reality hyperinflation and the possibility of more public funds? As always, the market trends will reveal themselves long before an official answers are provided.

Banking Stocks to Gold Ratio:
^[9]

Banking Stocks to S&P 500 Ratio:
^[10]

Source: finance.yahoo.com ^[11]

More… ^[12]

 

Bernanke: Fed wrestles with size of aid program
CIGA Eric

"Whatever it takes" rather than the illusion of “wrestling” as a description of the size of the aid program would be a better representation of the actions in the coming months and years. The game of controlled devaluation, based largely on the management of perception rather than reality, demands the more subtle headline. The Fed also suggests that jawboning or communication (backed by the printing press) could be used a tool manage perceptions. When communication is completely divorced from action, it’s half-life of effectiveness deteriorates quickly.

Federal Reserve Chairman Ben Bernanke says the central bank is prepared to take steps to rejuvenate the economy through the purchase of Treasury bonds but is wrestling with how big the program should be.

Bernanke also says the Fed could use its communications powers to prevent the United States from slipping into a deflationary spiral.

But Bernanke says the Fed must proceed cautiously in deciding how big a program to buy Treasury debt should be. Bernanke said it is a challenge for Fed policymakers to determine the size of the program and how the debt purchases would be paced.

Source: finance.yahoo.com ^[13]

More… ^[14]

Jim,

There is no need for a cost of living increase for retirees if you believe in MOPE spin.

Just suck it up until the day they use real inflation numbers such as those provided by John William’s great service at www.ShadowStats.com ^[15].

Of course that will happen when hell freezes over. Until then the Angels will be pulling gold to much higher prices.

CIGA "The Gordon"

^{[16] [17]}

Social Security benefits will remain flat for 2nd straight year, government says
By Amy Goldstein
Washington Post Staff Writer
Friday, October 15, 2010; 10:25 AM

For the second year in a row, the nearly 54 million retirees and other Americans who receive Social Security benefits will not get any cost-of-living increase in 2011 in their monthly checks, government officials announced Friday morning.

The absence of any growth in Social Security checks for consecutive years is unprecedented in the 3 1/2 decades that payments have been automatically adjusted according to the nation’s inflation rate. The Social Security Administration made the announcement moments after the Labor Department released the latest figures for the consumer price index. They show that prices for the third quarter of this year rose by 1.5 percent compared with a year earlier, but fell by 0.6 percent compared with the same time in 2008.

In a symptom of the weak economy, last year marked the first time since the automatic formula has existed that consumer prices fell, so Social Security recipients were given no increase in their checks.

This year, the picture is more complicated – and likely to produce louder complaints over the lack of a cost-of-living increase.

More… ^[18]