In The News Today

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Jim Sinclair’s Commentary

The following excerpt is from Eric Sprott’s recent article "The Real Banking Crisis, Part II."

The recent gold price has been particularly frustrating given the continuation of bullish demand trends out of China. China posted another record Hong Kong gold import number in March of 62.9 tonnes. Gold imports into China have now totaled 135.5 metric tonnes between January and March 2012, representing a 600% increase over the same period last year. We don’t have to connect the dots here – China is stockpiling the precious metal while investors in the West scratch their heads wondering why the spot price is so low.

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Jim Sinclair’s Commentary

QE to infinity is certain.

US 1Q GDP Revised Down To 1.9% Growth Rate

WASHINGTON — The U.S. economy slowed more than initially thought in the first quarter amid smaller gains in consumption and inventories, while corporate profits picked up.

Gross domestic product increased at a 1.9% annual rate from January through March, the Commerce Department said Thursday. In its original report a month ago, the department estimated an increase of 2.2% in first-quarter GDP, the broadest measure of all the goods and services produced in an economy.

Still, companies registered their biggest quarterly gain in profits since the end of 2009. Corporate profits–after tax and unadjusted for inventories and capital consumption–increased at an 11.7% annual rate from the previous quarter. Profits were up 14.8% year on year in the first quarter, Commerce said.

The economy has cooled off since expanding at the fastest pace in a year and a half in the final quarter of 2011, with a 3.0% growth rate. But the fourth-quarter acceleration was driven partly by companies aggressively restocking inventories to catch up with demand.

Thursday’s report showed that the inventory buildup was even less than expected in the first quarter, with the contribution to GDP falling to just 0.2 percentage point from 0.6 percentage point.

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Jim Sinclair’s Commentary

QE to infinity is certain.

Foreclosures made up 26% of U.S. home sales in first quarter
By Jessica Dickler @CNNMoney May 31, 2012: 5:13 AM ET

NEW YORK (CNNMoney) — Homes in some stage of foreclosure accounted for more than one in four home sales during the first three months of the year, according to a report released Thursday.

Distressed properties that were either in default, scheduled for auction or bank-owned accounted for 26% of all residential sales during the first quarter, up from 22% in the previous quarter and 25% a year earlier, RealtyTrac said.

Altogether, 233,299 distressed properties were purchased during the quarter, an 8% increase from the previous quarter. Those homes sold for an average of $161,214, 27% below the average price of a home not in foreclosure.

"Foreclosure-related sales picked up in the first quarter, particularly pre-foreclosure sales where a distressed homeowner is selling to avoid foreclosure — typically via a short sale," Brandon Moore, chief executive of RealtyTrac said in a statement.

Pre-foreclosure sales, which are often sold as short sales, hit a three-year high during the quarter "even as the average pre-foreclosure sales price dropped to a record low," Moore said.

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Jim Sinclair’s Commentary

QE to infinity as there is no other option whatsoever.

Denials will come but QE will prevail. The longer the Fed plays hold out the more unmanageable the coming disaster will be.

Debt crisis: a $46 trillion problem comes sweeping in
Bad stuff, they say, comes in threes. We’ve already got the banking and the eurozone sovereign debt crises. Next comes the corporate funding crisis.
By Jeremy Warner, Associate editor
7:26PM BST 28 May 2012

Just as you thought things couldn’t get any worse, credit markets are about to be hit by a veritable tsunami of maturing corporate debt. Standard & Poor’s estimates that companies in Europe, the US and the major Asian economies require a combination of refinancing and new money to fund growth over the next four years of between $43 trillion and $46 trillion. The wall of maturing debt is unprecedented, raising the prospect of further, extreme difficulties in credit markets.

With the eurozone debt crisis still at full throttle, the Chinese economy slowing fast and a still tepid US recovery, it’s not clear that the banking system is in any position to deal with this incoming wave of demand.

As if the refinancing problem wasn’t already challenging enough, into it all stumbles the European commissioner for internal markets, Michel Barnier, to prove the old saw that there is no mess quite so bad that official intervention won’t make even worse.

A traditionalist French socialist by background, Mr Barnier positively revels in his job as the EU’s top financial services regulator. In a recent interview, he said that he liked the term "shareholder spring" because it implied "a regulation spring, a rule making spring". Yes, indeed, Mr Barnier likes very much rules and regulations. He wants to regulate everything from pay to solvency. The financial crisis has given him a wide open canvass on which to paint.

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Jim Sinclair’s Commentary

Face it, everything that is required in Euroland will be provided.

Anything required that is not immediately available there will be provided by the Fed via swaps.

QE to Infinity is as sure as death and taxes

IMF looking at Spain bailout: report
By William Spain

CHICAGO (MarketWatch) — The European division of the International Monetary Fund is looking at possible plans for a rescue loan to Spain if that country can’t find the cash to bail out its third-largest bank by assets, the Wall Street Journal reported Thursday, citing unnamed sources. Spain is reportedly short 10 billion euros needed to save Bankia S.A.ES:BKIA +0.19% ; the total tab will run to 19 billion euros, but Spain’s bank bailout fund has 9 billion euros left, the newspaper noted. A bailout would essentially nationalize the bank, which got caught short as s result of a crash in the real-estate market and general economic downturn.

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Jim Sinclair’s Commentary

Well now there are two of us that love gold and look for higher prices now.

Einhorn Trashes Buffett And Cash, But Loves Gold
5/31/2012 @ 2:18PM

Hedge fund manager David Einhorn, well known for his persuasive belittling of companies he has shorted–a recent successful target was Green Mountain Coffee Roasters (GMCR)– has slyly taken on a sturdier target in his May 29 letter to holders in his Greenlight Capital funds: Warren Buffett.

Buffett, you’ll recall, devoted ten paragraphs of his latest letter to Berkshire Hathaway (BRK.A) shareholders to mocking Gold Bugs. It’s a tour de force by the Old Man, and we highly recommend reading the passage.

In it, Buffett figuratively stacks up all the world’s gold and compares it to assets he views as more productive:

“Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce–gold’s price as I write this–its value would be $9.6 trillion. Call this cube pile A.”

“Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?”

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Jim Sinclair’s Commentary

Of course as QE prepares to go to infinity here and there.

Euro Leaders May Need to Ease Deficit Plans, IMF’s Shafik Says
By Scott Hamilton – May 31, 2012 9:30 AM GMT-0300

European authorities should consider relaxing fiscal consolidation targets for some euro-area countries as they may exacerbate economic slumps and undermine public support, International Monetary Fund Deputy Managing Director Nemat Shafik said.

“Fiscal adjustment plans for this year are broadly appropriate in Europe,” Shafik said in prepared remarks for a speech at the Brussels Economic Forum in the Belgium capital today. “In a few euro-area countries, however, the nominal fiscal targets for 2013 agreed before the current slowdown in growth may prove too pro-cyclical and may need to be adjusted or at least expressed in structural terms.”

Shafik also said the European Central Bank could loosen policy further to keep inflation from slipping too far below its goal of just under 2 percent. Data today showed euro-area price growth eased more than economists forecast in May to 2.4 percent. As well as pushing back deficit deadlines for some euro members, leaders should also look at increasing financial integration to ease market pressures, she said.

“Greater fiscal integration would contribute to lowering sovereign yields and would likely improve the ability of countries to access markets to finance their debt,” Shafik said. “Such steps would involve providing banking support from a common resource pool independent from national sources, sooner rather than later.”

While a common backstop would entail “some fiscal risk- sharing,” Shafik said restoring stability will require “additional pooling of sovereignty.”

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Jim Sinclair’s Commentary

This situation is moving towards a conclusion fast.

Money flies out of Spain, regions pressured
By Sonya Dowsett and Sarah White
MADRID | Thu May 31, 2012 10:49am EDT

(Reuters) – Spaniards alarmed by the dire state of their banks are squirreling money abroad at the fastest rate since records began, figures showed on Thursday, and the credit ratings of eight regions were cut.

Spain is the next country in the firing line of the euro zone’s debt crisis, with spendthrift regions and shaky banks threatening to blow a hole in state finances and pushing funding costs towards levels that signal the need for a bailout.

The European Commission gave new help on Wednesday, offering direct aid from a euro zone rescue fund to recapitalize Spanish banks and more time for Madrid to reduce its budget deficit.

That helped lower the risk premium investors demand to hold Spanish 10-year debt rather than the German benchmark on Thursday, but it remained close to the euro-era record, at 520 basis points.

Bank of Spain data showed a net 66.2 billion euros ($82.0 billion) was sent abroad last month, the most since records began in 1990. The figure compares to a 5.4 billion net entry of funds during the same month one year ago.

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Jim Sinclair’s Commentary

The sign carried by the sage that the end is near is wrong. The end is here now!

Wells Fargo Seizes Stockton, California City Hall
Thursday, May 31, 2012

The Stockton City Council announced Wednesday that they will look at bankruptcy contingency plans after Wells Fargo seized the new city hall building.

The city paid $35 million to buy the 8-story building, but was not able to move in because of its money problems, and recently stopped making debt payments all together. This is the fourth building that was repossessed by Wells Fargo; the bank seized three city parking garages for the same reason.

Just wait to financial problems start to put a squeeze on state governments. California and Illinois are high up on the list. They might be able to scrape by for another year or two, but that’s it.

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Jim Sinclair’s Commentary

Gold is being monetized everywhere. This is monetization even though it will be denied to be so by MSM.

Rupee rescue: Is RBI now gearing up for gold bonds?
Updated at Mon, May 14, 2012 at 12:31
Saikat Das

Speculation in the currency market is that the Reserve Bank of India (RBI) may issue government gold bonds to attract dollar inflows and stabilize the rupee which is in danger of slipping to a record low.

Earlier in the day, the RBI tightened rules for exporters, asking them to convert 50% of their dollar holdings into rupee and to access the forex market only after using up their existing balance.

"There is strong talk that RBI may issue sovereign gold bonds with interest rate in the range of 7-8%," a market participant with a private sector bank told Moneycontrol.com on condition of anonymity.

"Gold bonds would be issued to both resident and non-resident Indians against deposit of gold. Source (of gold) will not be questioned. Simple tax could be levied at the rate of 15%. Tenure is likely to be 10 years. Gold collected will be pledged with foreign lenders and funds will be availed at 3 to 4%. The proceeds are likely to be used in infrastructure sector."

This news could not be confirmed, although a few currency dealers are endorsing the concept. A senior RBI official told Moneycontrol.com that gold bonds is one of the options.

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Jim Sinclair’s Commentary

This is not dollar positive. The mirror image dollar rally is limited in time.

Japan and China to start direct currency trading on Friday
Business May. 29, 2012 – 02:35PM JST

Japan and China will start direct currency trading this week, Tokyo said Tuesday, the first time Beijing has let a major unit other than the dollar swap with the Yuan.

The move, which will scrap the greenback as an intermediary unit, comes as China introduces measures as part of a long-term goal of internationalizing its currency to rival the dollar.

The two-way trade will also be allowed to move in a wider range than the narrow band at which the dollar and Yuan change hands, Dow Jones Newswires and the Nikkei business daily reported.

China will set a daily rate based on dealer quotes with trade allowed to move within a 3% band above or below that rate, the reports said, compared with a 1% band fixed to Yuan-dollar trading.

The Chinese central bank earlier Tuesday introduced a rate of 7.9480 Yuan for every 100 yen, Dow Jones said.

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