My Dear Friends,

I am physically back in the US. I am sure the rest of me will catch up soon. This is what 19 hours of traveling can do to you.

The flight from Joberg went through Dakar and was 19 hours from start to finish. That is the last time I do that.

From now on it is Joberg to Dubai to JFK. That is much more civilized.

Regards,
Jim

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Jim Sinclair’s Commentary

The Green Hornet says "The only way public pensions are going to remain functional is by government bailouts or QE to infinity."

I cannot disagree with that at all. It further influences me to say that all of this is coming to a head very soon.

Gold will trade at $1650 and beyond soon.

2011: The Year Public Pension Plans Get Whacked
By Carla Fried | Dec 21, 2010

The traditional defined-benefit pension that is the dominant retirement plan for public-sector employees officially has a huge target on its back. And 2011 is shaping up as the year politicians begin to take serious aim at cutting promised benefits. What was a mere trickle of states and municipalities starting to address massive unfunded pension liabilities in 2010, which are now estimated to total more than $1 trillion, looks to grow to a torrent in 2011.

New Jersey Governor Chris Christie may be the most voluble agitator for pension cutbacks, but he’s got plenty of company across the country. Here’s what some other states and cities are considering:

Virginia. Governor Bob McDonnell recently proposed that Virginia’s public employees be required to chip in 5 percent of their pay to the state’s pension fund. Virginia stopped requiring public employee pension contributions in 1983.

Houston. Mayor Annise Parker has started the “conversation” by deeming the city’s three major pension plans covering Houston’s police, firefighters, and municipal employees unsustainable. “There’s a difference between a fair pension and a gold-plated pension, and the citizens of Houston have to know that we can find a fair balance in there,” Mayor Parker told the Houston Chronicle.

Maryland. A proposal released yesterday by a state pension commission would increase the years of service for workers to qualify for Maryland public retirement benefits. Employees would need 15 years on the job (up from the current 5) to qualify for retiree health benefits, and the vesting period for the state’s pension plan would increase from its current five years to 10 years. The commission also wants to shift half of teacher pension costs from the state to local counties.

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Jim Sinclair’s Commentary

Here is another clear and present danger that must result in QE to infinity. There is no way out.

The revenues of states have but one way to go, and that is DOWN.

The expenses of states cannot be practically reduced to meet any equilibrium with the drop in revenue.

States will have to be bailed out, and that means QE to infinity. That means gold will trade at $1650 and better.

Jim Sinclair’s Commentary

There is no practical solution to the gathering economic and social clouds other than QE to infinity. Gold will therefore trade at $1650 and higher.

Wave of Muni Defaults to Spur Layoffs, Social Unrest: Whitney
Published: Tuesday, 21 Dec 2010 | 5:03 PM ET

A wave of defaults by state and local governments in the coming months will spark a selloff in the municipal bond market, hurting US economic growth and stocks and causing social unrest as governments are forced to lay off workers and cut back on services, well known financial analyst Meredith Whitney told CNBC Tuesday.

Responding to the uproar over her "60 Minutes" interview broadcast on CBS Sunday night, Whitney defended her prediction that at least 50 to 100 cities and towns could default on their debt as states and the federal government cut back on financial support.

Muni experts, including an analyst from Standard & Poor’s, dismissed her predictions, saying the numbers don’t add up.

"I appreciate that the reaction is so violent," she said in a live interview with CNBC. "I didn’t put the debt on these states. We’re looking at the numbers. This is how it plays out."

The big problem is that cash-strapped states will no longer be able to provide the financial support to municipalities as they have in the past, said Whitney, who is CEO and founder of Meredith Whitney Advisory Group.

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Gold looks poised to move higher
12/21/2010 12:48:47 PM | David Banister

Following a period of volatility and year-end position-squaring, gold looks set to move higher, and may have a good shot at hitting the US$1,525 an ounce level.

For many years now, the gold bull has been moving in very dependable Elliott Wave and Fibonacci patterns. But every once in a while, the outlook becomes a little less clear.  In recent weeks, for example, as we approach the end of 2010, we have seen a lot of price volatility as position squaring and year-end machinations hold sway.

But having said that, it does look like gold should be poised to rise in the short term, and I’m looking for a completion to a 5 wave rally that began from about $1,040 per ounce in February of this year.

During the past couple of months, I see a clear Fibonacci trading day relationship on Gold’s swings from pivot highs to pivot lows. 8 days of correction, 13 days of rally, 8 days of correction is the recent pattern over the past 5 weeks or so. Below is a chart outlining these crowd behavioral based patterns that I rely on for both my trading service and market forecasting services.

You can see the clear relationships, confirmed by the stochastics indicators at the tops and bottoms as well:

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Jim Sinclair’s Commentary

When confidence in the dollar collapses it is exactly like the event herein depicted.

 

Jim Sinclair’s Commentary

Here is where the bad stuff hits the fan.

The accounting firm opined on the OTC derivatives. That subject cannot stand the light of day a criminal investigation is sure to put on it.

N.Y.’s Cuomo Sues Lehman Accounting Firm Ernst & Young
By Karen Freifeld and Linda Sandler – Dec 21, 2010 9:18 AM PT

New York Attorney General Andrew Cuomo sued Ernst & Young LLP, accusing the firm of facilitating a “major accounting fraud” by helping Lehman Brothers Holdings Inc. deceive the public about its financial condition.

For more than seven years before Lehman declared bankruptcy in 2008, the investment bank engaged in transactions approved by Ernst & Young whose purpose was to move debt off its balance sheet and make it appear less leveraged, Cuomo said in a statement. This was done through what are known as “Repo 105” transactions.

“This practice was a house-of-cards business model designed to hide billions in liabilities in the years before Lehman collapsed,” Cuomo said today in one of his last cases as attorney general. “Just as troubling, a global accounting firm, tasked with auditing Lehman’s financial statements, helped hide this crucial information from the investing public.”

The state seeks to recover fees collected by Ernst & Young for work performed for Lehman between 2001 and 2008, which exceed $150 million, and investor damages and equitable relief, Cuomo said. He will be sworn in as New York governor on Jan. 1. His successor will be New York Democratic state Senator Eric T. Schneiderman.

Charles Perkins, a spokesman for Ernst & Young, didn’t immediately respond to a call and e-mail seeking comment.

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Jim Sinclair’s Commentary

You have to know this is all coming to a head very soon.

Those that heaped criticism on Bernanke are now at the door of the Fed with their Begging Bowls. The Fed created the money in the first place with QE to infinity.

Fed extends USD swaps with major central banks
By Sakari Suoninen
FRANKFURT | Tue Dec 21, 2010 12:23pm EST

FRANKFURT (Reuters) – The world’s major central banks said on Tuesday they would extend emergency supplies of U.S. dollar funding to money markets, in a sign that authorities remain concerned about financial instability as governments grapple with debt problems.

The European Central Bank, the Bank of Japan, Bank of Canada, the Bank of England and the Swiss National Bank extended their U.S. dollar liquidity providing operations with the U.S. Federal Reserve until August 1, an indication they view the money markets as still fragile.

The swap lines, which had been due to expire next month, were established to ease strains in short-term money markets by ensuring banks do not have trouble obtaining dollars, although banks have used the lines relatively little since the middle of this year.

The Fed’s policy-setting panel opened swap lines, first with the ECB and the SNB in December 2007 and later with other central banks, including those of Sweden, Mexico and Brazil.

These lines were discontinued in January this year because market conditions had improved, but in May the central banks decided to reopen the operations after the sovereign debt crisis ignited. Now they have been extended again.

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Jim Sinclair’s Commentary

How is this situation going to be rectified?

The simple answer is that it won’t be fixed in any manner. It will be papered over by the Fed buying new State debt, a classic form of QE.

$2tn debt crisis threatens to bring down 100 US cities
Overdrawn American cities could face financial collapse in 2011, defaulting on hundreds of billions of dollars of borrowings and derailing the US economic recovery. Nor are European cities safe – Florence, Barcelona, Madrid, Venice: all are in trouble
Elena Moya
guardian.co.uk, Monday 20 December 2010 17.58 GMT

More than 100 American cities could go bust next year as the debt crisis that has taken down banks and countries threatens next to spark a municipal meltdown, a leading analyst has warned.

Meredith Whitney, the US research analyst who correctly predicted the global credit crunch, described local and state debt as the biggest problem facing the US economy, and one that could derail its recovery.

"Next to housing this is the single most important issue in the US and certainly the biggest threat to the US economy," Whitney told the CBS 60 Minutes programme on Sunday night.

"There’s not a doubt on my mind that you will see a spate of municipal bond defaults. You can see fifty to a hundred sizeable defaults – more. This will amount to hundreds of billions of dollars’ worth of defaults."

New Jersey governor Chris Christie summarised the problem succinctly: "We spent too much on everything. We spent money we didn’t have. We borrowed money just crazily. The credit card’s maxed out, and it’s over. We now have to get to the business of climbing out of the hole. We’ve been digging it for a decade or more. We’ve got to climb now, and a climb is harder."

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