Posted at 10:00 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

As confidence becomes fragile, even a small thing like this can have far reaching implications.

Bulgaria to allow its fourth-biggest bank to collapse
July 11, 2014 3:04 PM
By Tsvetelia Tsolova

SOFIA, July 11 (Reuters) – Bulgaria is to allow its fourth-biggest lender to collapse but could spend up to 2 billion levs ($1.39 billion) making sure customers do not lose out, as the Balkan country battles to clean up its worst financial scandal since the 1990s.

The central bank said it was removing Corporate Commercial Bank’s (Corpbank) banking licence and would hive off its healthy activities into a separate bank, marking the first banking collapse since a 1996-1997 domestic financial crisis.

The Bulgarian National Bank (BNB) is also alerting prosecutors to the possibility that Corpbank’s main shareholder stole almost 206 million levs just before the central bank took over its operations on June 20 after depositors withdrew about 1 billion levs.

The bank run was prompted by media reports accusing top shareholder Tsvetan Vassilev of shady business deals. It spread quickly to another lender, forcing Sofia to set up a protective $2.3 billion credit line for its banks – a reminder that parts of Europe’s financial system are still far from secure despite progress from the worst days of the global financial crisis.

Vassilev has denied the allegations against him.

"For several months now a massive, targeted and extremely manipulative campaign has started against me, which spilled over on everything associated with my name," he told Bulgarian news agency BGNES, echoing comments he made previously to Reuters.

But the results of an audit into Corpbank showed "actions incompatible with the law and good banking practices", BNB said. Auditors were unable to value about 65 percent of Corpbank’s 5.4-billion-lev loan portfolio because crucial documentation was missing – "most likely destroyed in the days before the central bank sent administrators there," the BNB added.

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Jim Sinclair’s Commentary

This is the most logical result of recent international US dollar fines.

Gold Market Strengths

Christian Noyer, head of the French central bank and ECB governing board member, believes the global expansion of U.S. regulations will encourage diversification away from the U.S. dollar, threatening its reserve currency status. Noyer’s comments come as a result of the hefty fines the U.S. government is levying on French bank BNP Paribas after it was accused of dealings with Iran. Mr. Noyer added that trade between Europe and China does not need to use the U.S. dollar, especially now that China has agreed to the creation of an offshore renminbi clearing in Paris. Mr. Noyer concluded by stating the French central bank will now actively avoid U.S. dollar transactions in order to escape the application of U.S. regulations to its dealings.

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Jim Sinclair’s Commentary

This also applies to the banking system in the USA in the degree of their leverage to uber risky OTC derivatives.

Portuguese bank crisis is the tip of the iceberg
July 11, 2014, 9:14 a.m. EDT
By Diana Furchtgott-Roth, MarketWatch

The Portuguese crisis over Banco Espirito Santo should be a reality check for European markets. Espirito Santo is just the excuse — real problems lie far deeper.

The European Central Bank has been playing with fire, with junk bonds ultimately funded by German taxpayers. Investors are waking up and smelling smoke, and at some point they will get singed.

Three companies are involved in the Espirito Santo mess. Banco Espirito Santo is the largest publicly traded commercial bank in Portugal. Its controlling shareholder, Espirito Santo Financial Group, owns 25% of its shares. The privately held parent company, Espirito Santo International, owns 49% of Espirito Santo Financial Group (and therefore part of Banco Espirito Santo). It is this parent company that is likely to default on its payments. Even if Espirito Santo International defaulted, Banco Espirito Santo does not necessarily have to go under, but it might.

The problem is that Banco Espirito Santo is a weak institution irrespective of its parent holding companies, dabbling in risky assets in emerging markets that saner banks would not touch. Its risk management department needs a major shakeup.

For instance, the bank has invested in Angola, setting up a subsidiary known as Banco Espirito Santo Angola (BESA). BESA has relied on Banco Espirito Santo for its funding, with loans in Angola amounting to 220% of deposits. Bad loans have exploded in Angola in recent years, rising by 84% from 2010 to 2013. BESA’s assets include 6 billion euros’ worth of loans payable, and Banco Espirito Santo has a 55% stake in the bank.

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Posted at 8:04 PM (CST) by & filed under Jim's Mailbox.

Jim,

Today’s security markets were about the most subdued I ever have seen.

Things were so quiet that for several hours half of the floor traders crowded into a small bathroom at the New York Stock Exchange to watch a new coat of paint dry. There were active discussions over whether the color was grayish green or greenish gray, but no consensus was reached. All personnel involved said that this aesthetic experience was far more exciting than floor action. The volume of shares traded was the lowest since just before the Gadsden Purchase in 1853, which immediately preceded the incorporation of Chipotle’s Mexican Grill.

I could be wrong, but this period feels rather like the far recession of water from beaches just before a Tsunami wave comes in. I have a gut hunch that we are seeing the contemplative period following yesterday’s default on a bond interest payment by Banco Espirito Santo in Portugal. I don’t know what the effect of this will be on the derivates house of cards around the world. At the very least it puts the lie to all of the European Bank stress tests, the results of which were – and I apologize here for the technical financial jargon – "Just move along. Nothing to see here."

Strangely counter-intuitive price rises in TLT over the past while suggest that there is a non-zero possibility that the Fed may not be opposed to a sharp stock market drop that could drive a lot more people into bonds, which in turn could help keep interest rates down, a useful outcome for a country that is so deeply in debt that we are borrowing money from the inhabitants of Pluto even though they no longer inhabit a planet.

Gold and mining stocks look more interesting than ever. There’s a lot to read and understand. Here’s a start:

CIGA Robert.

Massive PM-Futures Buying
Adam Hamilton
Jul 11, 2014

Both gold and silver have enjoyed massive buying by American futures speculators in recent weeks. It all started with Fed chair Janet Yellen’s cavalier dismissal of inflation, but the buying momentum persisted well after that. Happening in the midst of the summer doldrums when global precious-metals investment demand is weak, this is an exceptionally-bullish portent. It is setting up the PMs for a major autumn upleg.

A little over a month ago, I wrote an essay on the record shorting of gold and silver futures by American speculators. This one group of traders utterly dominates gold and silver price action, and therefore the fortunes of stock traders’ flagship GLD gold ETF and SLV silver ETF. Gold futures had just seen their biggest jump in spec shorts, and silver futures their highest levels of spec shorts, in at least 15.4 years!

As I said then with gold and silver loathed and languishing near ugly multi-month lows, extreme shorting is very bullish. Futures shorts contractually have to be covered before expiration, and this is done by buying offsetting longs. The higher speculators’ futures shorts get, the more near-future buying they guarantee. And since futures are so hyper-leveraged, this buying to cover often happens quite rapidly.

In early June near the gold and silver lows, speculators merely needed to keep $6000 in their account to control a single 100-ounce gold contract, and $8250 for a single 5000-ounce silver contract. But these contracts were worth a whopping $125,000 and $95,000 respectively at $1250 gold and $19 silver. So that represented maximum leverage of an insane 20.8x in gold futures and 11.5x in silver futures!

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Jim,

The government of the Ukraine is playing very aggressively and should beware of stomping on the bears toes.

CIGA Larry

Russia Vows to Respond After Shelling From Ukraine
By Daryna Krasnolutska and Olga Tanas Jul 13, 2014 3:00 PM MT

Russia and Germany called for a resumption of Ukraine crisis talks as President Vladimir Putin’s government condemned the shelling of its territory that left one person dead.

Putin and German Chancellor Angela Merkel agreed during a meeting in Rio de Janeiro yesterday that international representatives should meet as soon as possible, probably via video link, said Dmitry Peskov, the Russian president’s spokesman. The so-called contact group on Ukraine should work to secure a cease-fire and a resumption of monitoring, he said.

Clashes between Ukraine’s government forces and pro-Russia rebels in the east of the country have intensified since President Petro Poroshenko called off a cease-fire July 1. Putin and Merkel met as Russia warned of “irreversible consequences” after the Foreign Ministry said a Ukrainian army shell killed one person in the southern region of Rostov. Ukraine said its military didn’t fire on Russian territory and is ready to help investigate the incident.

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Posted at 12:58 PM (CST) by & filed under In The News.

The US 2014-2015: the dominoes of pensions, Munis and the Dollar

… The dilemma between sacrificing schools and retirees and allowing cities to go bankrupt is quickly resolved, because the first domino which can cause the rest to fall is municipal bankruptcy. What must be avoided at all cost is this huge danger of a “real” major « chapter 9 » municipal bankruptcy, with debt restructuring and bond repayment default. The impact would be devastating on the huge Muni (municipal bond) market, amounting to $3.7 trillion, because the seizing up of this market would prevent many cities from accessing finance. Interest rates on these bonds would rise instantly, resulting in a vicious circle: rising funding costs for cities already suffering from budget problems, serial bankruptcies, inability to pay pensions and provide public services; moreover, the price of already issued bonds would fall, which here again would be a disaster for “prudent” investors (such as pension funds) which could also go bankrupt. The wheel has turned full circle: if one chooses not to sacrifice retirees, then cities go bankrupt, taking pension funds with them, and still sacrificing retirees…

Excerpt GEAB N°86 (June 15, 2014)

Germany Said to Review ‘No-Spy’ Purchasing Rules Amid U.S. Row
By Cornelius Rahn and Amy Thomson Jul 11, 2014 7:45 AM MT

Germany’s Interior Ministry is reviewing rules for awarding government contracts for computer and communications equipment and services as a political rift with the U.S. widens, people familiar with the matter said.

The ministry will probably issue new purchasing guidelines in the coming weeks to replace its “no-spy-order” dated April 30, said the people, who asked not to be named because the deliberations are private. Details are being worked out, and may require suppliers of components of a bidder’s goods or services to guarantee they don’t hand over confidential data.

Any tightening of procurement procedures could affect U.S. technology companies such as International Business Machines Corp. (IBM), Cisco Systems Inc. (CSCO) and Microsoft Corp. (MSFT) as they vie for government contracts. U.S.-German tensions escalated yesterday after Germany expelled a top intelligence officer from the U.S. embassy in Berlin.

“They’ll come under scrutiny, those contracts with U.S. suppliers, as they come up for renewal,” said Andrew Rose, a London-based security and risk analyst at Forrester Research. “There is a definite point here about privacy and respect that Germans are trying to draw a line under.”

German federal and local agencies spend $28 billion on technology and communications hardware and services annually, of which at least 1 billion euros ($1.4 billion) of contracts are handled by the Interior Ministry.

Pamela Mueller-Niese, a ministry spokeswoman, didn’t immediately answer phone calls and an e-mail seeking comment. Marie-Ann Maushart, an IBM spokeswoman, and Nadine Papenfuss, a Microsoft spokeswoman, declined to comment, as did Patrick Rothwell, a representative for Cisco.

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Russia, China Hold Military Drills to Strengthen Bilateral Cooperation
16:19 09/07/2014

BEIJING, July 9 (RIA Novosti) – Russian-Chinese joint military drills are aimed at strengthening bilateral cooperation, not threatening alleged enemies, Kremlin Chief of Staff Sergei Ivanov said Wednesday during a meeting with students from Beijing University of Foreign Languages.

“We are sovereign states, we are not carrying out these drills against somebody. We are holding it to strengthen our bilateral cooperation. We are not violating any international laws; it is a sovereign choice of two states,” Ivanov said.

The official noted that Russia and China held their first joint military exercises in the mid-2000s, which met a mixed response from the West.

Russian President Vladimir Putin and Chinese leader Xi Jinping recently agreed to hold joint drills next year to mark the 70th anniversary of the victory in the Great Patriotic War, a term used in Russia and other ex-Soviet states to describe the conflict between the Soviet Union and Nazi Germany during World War II.

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ISIS seizes uranium from lab; experts downplay ‘dirty bomb’ threat
By Perry Chiaramonte
Published July 10, 2014

Iraqi jihadists have grabbed 88 pounds of uranium compounds from a Mosul University science lab, but U.S. and international weapons experts are downplaying the possibility the deadly toxins could be used to make a so-called "dirty bomb."

The material, believed to be low-grade, unenriched uranium mixed with other elements, was taken from a science lab at Mosul University by ISIS, the terrorist group that took over Iraq’s second-largest city last month and has vowed to attack Baghdad. Iraq notified the UN in a July 8 letter which sought international help to "stave off the threat of their use by terrorists in Iraq or abroad," according to Reuters, which saw the letter.

Although the material is not believed to be weaponized, and ISIS does not have known missile delivery capability, the theft stoked fear that a dirty bomb – a primitive explosive used to disseminate radioactive material – could be fashioned from the uranium compounds.

"There is theoretically the potential for a dirty bomb.”

- Daryl Kimball, Arms Control Association

"There is theoretically the potential for a dirty bomb,” Daryl Kimball, of the Arms Control Association in Washington, told FoxNews.com, explaining that such bombs are more effective at scaring people than killing them. "It explodes and the terrorist is banking on the fear factor of radiation. That’s what we are looking at here at worst.”

Iraq’s Foreign Ministry said the compounds were used at Mosul University labs in "very limited quantities" for research, and that they were slated for destruction before ISIS took over the city.

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China-Singapore RMB cash transfer begins
Updated: 2014-07-10 13:34

GUANGZHOU – Cross-border cash transfer of the yuan between China and Singapore began on Wednesday in Guangzhou.

The transfer by the Guangdong provincial office of the Industrial and Commercial Bank of China (ICBC) will reduce exchange costs and risk for banks in Singapore and Southeast Asia, said Niu Gang, general manager of ICBC operations. .

Singapore was the first country to sign a yuan clearance agreement with China and has massive volume of cross-border yuan businesses, said Wang Jingwu, head of the Guangzhou branch of the People’s Bank of China (PBOC).

In the first five months this year, yuan settlement between China and Singapore reached 421 billion yuan ($68.4 billion ), of which 17 percent was traded between Guangdong and Singapore, said Wang.

The PBOC, China’s central bank, will actively support yuan cross-border transfer on a regular basis and maintain an orderly flow of currency between China and Singapore, said Li Huifeng, deputy head of the PBOC currency, gold and silver bureau.

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Iraq conflict: Kurds seize two oil fields in north
11 July 2014 Last updated at 08:21 ET

Iraqi Kurds have taken over two oil fields amid a growing dispute with the government in Baghdad, Iraqi and Kurdish sources say.

Kurdish peshmerga forces seized control of production facilities at the Bai Hassan and Kirkuk oil fields in the north of the country on Friday.

Kurdish MPs have also withdrawn from Iraq’s central government.

They did so after Iraqi Prime Minister Nouri Maliki accused the Kurds of harbouring extremists.

Kurdish forces have moved into areas of north-western Iraq abandoned by the Iraqi army during the advance of Islamist insurgents led by the Isis (Islamic State in Iraq and the Levant) group over the past month.

The Kurds have since declared plans to hold a referendum on independence in the areas seized, escalating tensions with Iraq’s central authorities.

Maliki ‘hysterical’

In a statement on Friday, the Iraqi oil ministry condemned the seizure of oil refineries, adding that they expected Kurdish fighters to "support security forces in confronting terrorist groups rather than using the conditions to raid and occupy oil fields".

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Portugal Smolders as Allianz Says Crisis Isn’t Over
By Eshe Nelson Jul 11, 2014 2:28 AM MT

When asking Allianz SE’s chief investment officer about the euro area’s sovereign debt woes, be prepared for an emphatic response.

“The fundamental problems are not solved and everybody knows it,” Maximilian Zimmerer said at Bloomberg LP’s London office. The “euro crisis is not over,” he said.

While extraordinary stimulus from the European Central Bank has encouraged investors to pile into the region’s government bonds this year, that’s not a sufficient remedy for Zimmerer, who oversees 556 billion euros ($757 billion) at Europe’s largest insurer. Countries are still building up their debt piles, and that’s storing up trouble for the future, he said.

As Zimmerer was speaking, investors were getting a reminder of the volatility that was rife through the sovereign debt crisis that started in 2009, as sliding stocks and bonds of Portuguese financial institutions rippled across the region’s markets. Amid a four-day slump, yields on Portugal’s 10-year bonds ended yesterday 279 basis points higher than their German counterparts, the widest spread since March 18. The securities recovered some of their losses today, tightening the spread to 268 basis points at 10:27 a.m. London time.

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Posted at 9:55 AM (CST) by & filed under In The News.

Stocks smacked by Europe woes; Dow off 1%
Kate Gibson | @CNBCKateGibson

U.S. stocks dropped sharply on Thursday, tracking European shares, after soft data from Italy and as investors worried about one of Portugal’s top banks.

"We used to have a Europe crisis every two weeks, now we have one every nine months," said JJ Kinahan, chief strategist at TD Ameritrade.

Investors sought safety in U.S. Treasuries and gold, with the yield on the benchmark 10-year note falling 4 basis points to 2.512 percent and gold futures jumped $17.40, or 1.3 percent, to $1,341.70 an ounce on the New York Mercantile Exchange.

The Chicago Board Options Exchange Volatility Index, a measure of investor uncertainty, jumped more than a point, or 13.2 percent, to 12.66.

In Europe, stocks from the euro-zone’s periphery led declines, with Portuguese bonds stumbled amid concerns about the health of the financial group Banco Espirito Santo.

Also weighing on sentiment was a report showing Italian industrial output down 1.2 percent in May from the prior month, its largest monthly drop since late 2012, fueling concern for that nation’s economy.

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We’ve Crossed The Tipping Point; Most Americans Now Receive Government Benefits
7/02/2014 @ 4:45PM

Obamacare has pushed us over the entitlements tipping point.  In 2011 some 49.2 percent of U.S. households received benefits from one or more government programs—about 151 million out of an estimated 306.8 million Americans—according to U.S. Census Bureau data released last October.

Currently, around 6 million to 7 million Americans who have signed up for Obamacare are receiving taxpayer-provided subsidies (though the administration’s numbers cannot be trusted, it’s all we have to work with).  There are another 3 million who have signed up for Medicaid.

That means some 10 million Americans—or a total of about 161 million—are now getting government subsidies (though the final number might be somewhat lower since some may have been receiving benefits already).

Thus, perhaps 52 percent of U.S. households—more than half—now receive benefits from the government, thanks to President Obama.  And Mr. Entitlement is just getting started.  If Obamacare is not repealed millions more will join the swelling rolls of those dependent on government handouts.

Conservatives have long dreaded the day when the U.S. crossed the halfway mark because of all the implications for individual and fiscal responsibility. As Benjamin Franklin reportedly said, “When the people find that they can vote themselves money, that will herald the end of the republic.”  They learned that from the 2008 election and turned out in big numbers again in 2012.

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Iraq insurgents ‘seize nuclear materials’ from Mosul University
Thursday 10 July 2014

Iraq has told the United Nations that “terrorist groups” have seized nuclear materials used for scientific research at a university in the country’s north.

In a letter seen by Reuters, dated 8 July, the country appealed for help to “stave off the threat of their use by terrorists in Iraq or abroad”.

But the UN atomic agency said on Thursday it believed the nuclear material requisitioned by insurgents was “low grade” and did not pose a significant security risk.

Iraq’s UN Ambassador Mohamed Ali Alhakim told UN Secretary-General Ban Ki-moon in the letter that nearly 40 kilogrammes (88 pounds) of uranium compounds were kept at Mosul University.

“Terrorist groups have seized control of nuclear material at the sites that came out of the control of the state,” Alhakim wrote, adding that such materials “can be used in manufacturing weapons of mass destruction.”

The International Atomic Energy Agency “is aware of the notification from Iraq and is in contact to seek further details,” spokeswoman Gill Tudor said.

“On the basis of the initial information we believe the material involved is low grade and would not present a significant safety, security or nuclear proliferation risk.”

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BRICS countries near development bank deal to rival IMF, WB

The emerging economies of Brazil, Russia, India, China and South Africa, are a couple of days from agreeing the $10 billion BRICS development bank, as well as a $100 billion currency pool. It could challenge global lenders like the IMF and World Bank.

The bank will be called the New Development Bank, and will provide finance for infrastructure projects. Its creation will meet the needs of emerging and poorer economies according to Russian Finance Minister Anton Siluanov.

In a speech Wednesday he confirmed the funding would be divided equally, Russia will contribute $2 billion in initial capital for the BRICS bank over seven years.

The bank will start with $10 billion in cash and $40 billion in guarantees. The $50 billion will be eventually built up to $100 billion.

The bank will be able to start lending in 2016, the minister says.

The final decisions concerning the creation of the bank are expected to be made by the BRICS leaders at a summit in Brazil on 15-16 July.

Apart from the BRICS countries other UN members may also participate in the bank’s development, but their total share won’t exceed 45 percent.

The location of the headquarters is still not decided, but Siluanov said the two favorite cities are Shanghai and New Delhi.

BRICS leaders are also expected to sign an agreement to establish an additional $100 billion fund to steady the currency markets.

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For Retailers, Spring Weather Isn’t Enough
Customer Traffic Slows for Many Chains; Container Store Cites a ‘Funk’
By Shelly Banjo
Updated July 10, 2014 10:49 a.m. ET

American retailers may have more than a weather problem.

Family Dollar Stores Inc. FDO +0.54% said fewer shoppers came into its stores in the three months through May 31, pushing sales down 1.8%, excluding newly opened or closed stores. In a move to win back traffic, the dollar chain said it would begin carrying beer and wine next year, adding to the tobacco, frozen food and other consumables that now make up 73% of sales.

L Brands, parent of Victoria’s Secret, said Thursday that its merchandise margin rate dropped in June from the same period last year. Bloomberg News

"Our results continue to reflect the economic challenges facing our core customer and an intense competitive environment," Chief Executive Howard Levine said.

The discounter’s message echoed that of Container Store Group Inc., TCS +1.86% whose shares fell more than 8% Wednesday after its chief executive told investors that the company and its fellow store chains are in a "retail funk."

"We’ve come to realize it’s more than just weather," Chief Executive Kip Tindell said. Falling traffic led to the first quarterly sales drop at the company in more than three years.

Investors flocked to the seller of bins, boxes and shelves when it went public last November, and shares more than doubled on opening day to close at $36.20. But so far this year, shares have dropped nearly 47%, as Container Store has succumbed to some of the pressures weighing on retail broadly.

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Posted at 4:43 PM (CST) by & filed under Jim's Mailbox.

Jim,

Yeah and later they do the same thing for another reason or just simply take the money and replace it with Treasuries in a "national emergency".

CIGA Ken

Boehner backs pension-linked plan for highway funds
Reuters with CNBC.com

House Speaker John Boehner said Wednesday he welcomes a plan to extend U.S. highway funding until May 31, 2015, from Ways and Means Committee Chairman Dave Camp and hopes to see it pass the House within two weeks.

"I think Chairman Camp and the members of the Ways and Means Committee have a really solid bill to help pay for the shortfall, if you will, in the Highway Trust Fund for the next eight or nine months," Boehner told reporters.

Camp’s $10.9 billion plan would be paid for with some fund transfers and revenue-raising measures, including $6.5 billion in new revenue from "pension smoothing," an accounting move that allows companies to delay contributions to employee pension plans. This boosts short-term corporate profits, producing more tax revenue collected by the Treasury.

"This is the only package with a proven history of getting big bipartisan votes in both the House and Senate," Republican Camp said in a statement. "And, while it doesn’t provide as much funding as I would like—enough to get through the end of next year—it does give Congress and the tax-writing Committees ample time to consider a more long-term solution to the Highway Trust Fund."

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Posted at 4:41 PM (CST) by & filed under In The News.

150676_600

Jim Sinclair’s Commentary

Crisis to crisis hidden by printing infinite paper. It cannot be stopped without the entire house of cards falling on Yellen.

Franklin Muni Fund Declines to Record Low on Puerto Rico Losses
By Michelle Kaske Jul 8, 2014 8:49 AM MT

A Franklin Templeton Investments municipal-bond fund with the industry’s biggest allocation to Puerto Rico has sunk to the lowest in its 29-year history as prices on the struggling commonwealth’s debt set record lows.

The price per share of the $300.4 million Franklin Double Tax-Free Income Fund (FPRTX) fell to $9.28 yesterday, the lowest since its inception in April 1985, data compiled by Bloomberg show. The drop follows Moody’s Investors Service’s three-step downgrade of Puerto Rico’s general obligations last week to B2, five levels below investment grade.

Franklin’s fund directed about 69 percent of assets to Puerto Rico debt as of May 31, according to Franklin Templeton’s website. That marks an increase from March 31, when it held 61 percent in commonwealth securities, more than any other U.S. muni mutual fund, according to Morningstar Inc. The island’s debt is typically tax-free nationwide.

“This fund is essentially acting like a Puerto Rico fund,” said Bart Mosley, co-president of Trident Municipal Research in New York. “This kind of exposure that this fund has is by far the exception.”

A Franklin fund manager wasn’t available to discuss the drop in value, Stacey Johnston Coleman, a spokeswoman for the San Mateo, California-based company, wrote in an e-mail.

Puerto Rico securities have traded at distressed levels for almost a year on speculation that the island of 3.6 million won’t be able to repay its obligations as the economy sputters.

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Isis seizes former chemical weapons plant in Iraq
US plays down threat as Iraq says Muthanna loss means it will be unable to fulfil obligations to destroy chemical weapons
Associated Press at the United Nations
theguardian.com, Wednesday 9 July 2014 04.26 EDT

The Islamic State extremist group (Isis) has taken control of a vast former chemical weapons facility north-west of Baghdad, where 2,500 degraded chemical rockets filled decades ago with deadly nerve agent sarin or their remnants were stored along with other chemical warfare agents, Iraq has said in a letter circulated at the United Nations.

The US played down the threat from the takeover, saying there were no intact chemical weapons and it would be very difficult to use the material for military purposes.

Iraq’s UN ambassador, Mohamed Ali Alhakim, told the UN secretary-general, Ban Ki-moon, in a letter that "armed terrorist groups" entered the Muthanna site on 11 June, detained guards and seized their weapons.

The following morning, the project manager spotted the looting of some equipment via the camera surveillance system before the "terrorists" disabled it, he said.

Isis, which controls parts of Syria, sent its fighters into neighbouring Iraq last month and quickly captured a vast swath of territory straddling the border between the two countries. Last week, its leader, Abu Bakr al-Baghdadi, declared the establishment of an Islamic state, or caliphate, in the land the extremists control.

Alhakim said as a result of the takeover of Muthanna, Iraq was unable to fulfil its obligations to destroy chemical weapons because of the deteriorating security situation. He said it would resume its obligations as soon as the security situation has improved and control of the facility has been regained.

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Jim Sinclair’s Commentary

"Bail in" is a shoe in for the entire Western world financial system.

Moody’s cuts bank outlook to ‘negative’ on Ottawa’s bail-in rule
Updated: Tue, 08 Jul 2014 17:46:12 GMT | By CBC News, cbc.ca

Investor ratings service Moody’s has changed its outlook for Canada’s biggest banks to negative from stable, citing concerns over the Canadian government’s plan to implement a “bail-in” system in the event of a bank failure.

The “bail-in” rule, included as part of the 2013 omnibus budget bill, asserts that the federal government would not necessarily bail out a bank on the brink of failure with taxpayer money.

Instead bank bondholders would be expected to assume the risk, though there is no guarantee that deposit-holders would not be hurt if they had more money in the bank than the $100,000 guaranteed by CDIC.

Canada has yet to set parameters for how a bail-in might work. Mark Carney, who was Bank of Canada governor at the time, said last April it was ‘hard to fathom’ a scenario where Canadians’ deposits would be touched, as happened in the Cyprus bank failure.

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Germans Probe 2nd Spy Case Reportedly Involving US
July 09, 2014 8:53 AM ET

BERLIN (AP) — German authorities are investigating a second spy case reportedly involving the U.S., a week after the arrest of a German intelligence employee cast a new shadow over relations between the two countries.

Federal prosecutors said Wednesday that police raided properties in the Berlin area on "initial suspicion of activity for an intelligence agency." They did not elaborate or specify what intelligence agency was involved, but said they had not made an arrest.

"We have investigations in two cases of suspected espionage, a very serious suspicion," government spokesman Steffen Seibert told reporters in Berlin. He declined to provide further details, citing the ongoing investigations.

The daily Sueddeutsche Zeitung reported, without naming sources, that the man being investigated worked at Germany’s Defense Ministry and is suspected of spying for the United States. Die Welt newspaper reported, also without naming sources, the man was a soldier in the German army who had aroused the suspicion of Germany’s military counter-intelligence agency because of his close contacts to alleged U.S. spies.

Defense Ministry spokesman Lt. Col. Uwe Roth declined to confirm the reports, but said the case fell "into the ministry’s area of responsibility" and that Defense Minister Ursula von der Leyen had been informed.

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Jim Sinclair’s Commentary

"Bail in" is coming to the entire Western financial world.

EBA proposes first-stage resolution rules
Wed Jul 9, 2014 12:24pm EDT
By Anna Brunetti

LONDON, July 9 (IFR) – The European Banking Authority is proposing giving national authorities the clout to require certain banks to hold a specific amount of bail-in-able assets to ensure institutions can be resolved without using taxpayer money.

The EBA published a consultation paper on Wednesday on the assessment of lenders’ "resolvability", setting out when and how national authorities could ask a bank to step up its loss-absorbency capacity as a precautionary move to make its resolution plan more credible.

As part of the EU Bank Recovery and Resolution Directive, national authorities first will be called to examine banks individually to decide whether normal insolvency procedures would be sufficient to keep the business running in a distressed scenario, or whether ad-hoc resolution plans would be needed. If this was the case, the authorities would then draw up targeted resolution plans and check whether the bank’s business model would allow that plan to become operational when things turn sour.

If they believe there are some elements in the bank’s business that wouldn’t allow the resolution plan to roll out smoothly, the authorities can apply three different sets of measures to increase the bank’s strength – structural, financial and transparency measures.

Within the financial measures, the authorities could effectively ask the bank to gear up levels of bail-in-able instruments higher than 8% of total liabilities – established as the threshold for lenders to access resolution funds under the BRRD.

This may mean that a higher number of subordinated and senior bonds could be written off or converted into equity whenever the resolution process is triggered.

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Posted at 11:11 AM (CST) by & filed under USAWatchdog.com.

By Greg Hunter’s USAWatchdog.com

Dear CIGAs,

Veteran journalist and author, James Howard Kunstler, is worried about the violence heating up in the Middle East–especially Saudi Arabia.  Kunstler says, “Saudi Arabia is between a rock and a hard place, or should I say Iraq and a hard place.  Both sides that are now contending in Iraq, the Shiite and the Islamic State or caliphate, are both not friendly with Saudi Arabia.  When we talk about Saudi Arabia, we have to make a distinction.  We are really talking about the Saud Family and their Kingdom and their gripe on the Kingdom. . . . Now, they are stuck between the Iran sponsored Iraqi government—Shiites and the Sunni Islamic State rebels who do not want to see the Saudi Kingdom continue.”

There is no viable peace process anywhere in the Middle East, and Kunstler goes on to say, “We’ve never really seen much disorder in Saudi Arabia in our lifetimes.  The kind of disorder that is going on all over the Middle East and North Africa has simply not been happening in Saudi Arabia.  So, really, all bets are off.  This ISIS, Islamic State, group is a true black swan.  It came out of nowhere about three of four weeks ago and dismantled the 8 year and several trillion dollar project of nation building, and 4,500 American lives lost, that the U.S. has been carrying on.  We really don’t know where they are going next.  We don’t know where this thing is going.  This thing is literally a loose artillery shell on the deck of the ship of history.”

Kunstler goes on to point out, “You probably noticed that we are not shooting at anybody because we don’t know what to shoot at and how to do the shooting right now.  Just about everything we have done in the entire region has been counterproductive and has produced more chaos.  It may be an unfortunate fact there is not much more we can do.  Life is tragic, and there are consequences to the things we do to people, and societies make bad choices and they have to live with them, and we have to live with the bad choices we’ve made with the interventions in the Middle East, and we have no idea where this thing is going.”  I think you and me and just about everyone else would not like to enter some sort of World War III situation.  If Saudi Arabia goes off-line, I think you going to see an awful lot of stress in the global economy.  I think there are a lot of people in Washington at this moment that are very, very nervous.  We just aren’t seeing it.”

Kunstler also says that society is totally unprepared for what is coming.  His upcoming book, “A History of the Future,” continues a fictional story of what America is like after a societal meltdown caused by the loss of cheap oil.  Even though this is fiction, it is anchored in massive research Kunstler does on oil, energy and the economy.  Kunstler says, “I wrote this nonfiction book back in 2005 called “The Long Emergency.”  That really kind of laid out the initial case for peak oil and the financial shenanigans that were under way and were disrupting the banking system and really the capital formation system in the whole developed world.”

After that, he wrote of series of fictional books about what life would be like after a real economic crash.  Kunstler says, “I wanted to get to the readers in a visceral way to tell them what the consequences of these disruptions might be.  These people are living an 1830’s lifestyle again, and there has been a considerable die-off in the population.  I wrote a book for each of the four seasons and this latest one, “A History of the Future.”  In this book, the nation has broken up into several breakaway nations.  I think this book is disturbing but a lot of fun.”

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Posted at 7:23 PM (CST) by & filed under In The News.

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Corporate Bonds Are The IEDs Of Monetary Central Planning: They Will Be Exploding Along Wall Street Soon
by David Stockman • July 2, 2014

Corporate bonds are the financial IEDs (improvised explosive devices) of monetary central planning. The Fed’s sustained, heavy-handed financial repression has generated the greatest ever scramble for yield, and it is now entering its seventh year. Consequently, speculators and bond fund managers are all in the same side of the boat. And all but the most intrepid traders are scared to death to short the Fed, fearing that any day it might uncork yet another round of bond market repression.

So we have basically a highly artificial one-way market in corporate bonds—both investment grade and high yield. Very recently yields in the latter touched an all-time low of 4.87%, meaning that after inflation and taxes there is virtually no room for losses on securities that are called “junk bonds” for a reason. Likewise, the investment grade index yield is down to 2.97%, leaving almost no margin for risk relative to the allegedly risk free rate on treasuries.

What this means is that the $5 trillion corporate bond market is badly mispriced. Yet history proves time and again that sub-economic yields do not stay that way indefinitely. Eventually the normalize—either because the Fed finally cools down it printing presses or owing to an unexpected shock, such as a surge of inflation, that triggers a sell-off.

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