Posted at 12:50 AM (CST) by & filed under General Editorial.

Dear CIGAs,

The Federal budget, or total receipts less total outlays, divided by GDP defines “The Formula.” The Federal budget is normalized or divided by GDP to remove the effects of dollar devaluation and smoothed to provide unbiased historical comparisons. For example, -5% Formula reading in 1992 is largely comparable to the -5% Formula reading in 2008.

I say largely because the two Formula readings, statistically speaking, are not comparable. The GDP time series has become increasingly bias over time due to subtle changes in the way it is calculated since the early 1980s. For further discussions on the reality of GDP and other official government times series please click here…

The leading formula is nothing more than a slight modification of the “Formula.” Tax withheld less outlays, divided by GDP defines the “Leading Formula.” Taxes withheld, a subsector of total receipts, is more sensitive to marginal changes in business activity. This sensitivity provides leading characteristic within the Formula calculation and provides valuable insight to changes in trend.

As stated previously on www.jsmineset.com, an economy is either rising at a rising rate or business activity is falling at an increasing rate. This is economic law 101. Falling business activity manifests itself as falling “Formula” values. Think of the Formula, Trade and Current Account Deficits as a speedometer of money flows in/out of the US. A negative speedometer in the "Formula" reading implies outflows. Ultimately, persistent outflows will send interest higher and devalue the dollar. For a detailed review of how the formula works click here…

The Formula has broken the 1983 and 1992 lows and continues to accelerate to the downside in 2009.

Regards,
CIGA Eric

Click here to visit CIGA Eric’s group on Facebook…

Click charts to enlarge

TW Leading Formula

 The Formula

Posted at 4:24 PM (CST) by & filed under In The News.

In my many years I have come to a conclusion that one useless man is a shame, two is a law firm and three or more is a congress. 
–John Adams

Dear CIGA Frustrated,

You voiced your concern of why participants in the gold and dollar market do what they do in modern times with all the information available to them.

The following video will clear up all your doubts. The music is the Comex band of jolly short of gold manipulators.

The people are of course the gold gang.

Sincerely,
Jim

Jim Sinclair’s Commentary

The madness continues. Consequences will not be avoided.

Freddie asks Treasury for $30.8 bln after big quarterly loss
By Alistair Barr
Last update: 4:38 p.m. EDT March 11, 2009

SAN FRANCISCO (MarketWatch) — Freddie Mac (FRE)asked the government for billions of dollars in extra support late Wednesday after reporting a fourth-quarter net loss of $23.9 billion, or $7.37 a share. That was a slight improvement from the third quarter of last year, when the mortgage giant suffered a net loss of $25.3 billion, or $19.44 a share. The Federal Housing Finance Agency, which oversees Freddie, has asked the Treasury Department for $30.8 billion and the company said it expects to receive that money in March.

More… http://www.marketwatch.com/news/story/Freddie-asks-Treasury-308-bln/story.aspx?guid={218D6426-B7C9-43CC-A568-4D89BB173C78}


Jim Sinclair’s Commentary

Please refer back to the illustration posted yesterday showing what a trillion dollar looks like in 100 dollar bills.

Now consider that before the BIS changed their figures to Shiller’s BS computer cartoon value to maturity, the number they reported was ONE QUADRILLION ONE THOUSAND ONE HUNDRED and 44 TRILLION

Now there is one major pile of toilet paper.

Regards,
Jim

Jim Sinclair’s Commentary

It is not AIG that is being fed. The funds go in the front and out the back to the winners of the derivative which are not the brokerage firms someday to be named.

For every loss there is a gain. Note that the AIG monster is sitting on top of the OTC derivatives winners.

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Jim Sinclair’s Commentary

I love this. At the Mesa, AZ, KFYI Radio and TV listeners brought signs telling Santa Obama that they wanted fair treatment equal to the fat cat bailouts of the Wall Street pigs.

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Jim Sinclair’s Commentary

Until the uptick short sale rule is reinstated and where it still exists is enforced, along with criminal charges for naked and pool short selling occurs, no equity rally will have good legs.

Tick-tock, the uptick rule is about to expire
Commentary: Implementation won’t save market, but it will help
By MarketWatch

NEW YORK (MarketWatch) — As if it weren’t bad enough for hedge funds, now there’s credible talk that the uptick rule, which curbs some short selling, could be on its way back in a matter of mere weeks.

House Financial Services Committee Chairman Barney Frank, D-Mass., told reporters at a press conference Tuesday with House Speaker Nancy Pelosi that he expects the Securities and Exchange Commission to introduce a draft rule to reinstate the uptick rule next month.

Critics of short sellers, including Charles Schwab and the head of the New York Stock Exchange, Duncan Niederauer, have argued that the rule’s elimination has contributed to the economic downturn or is harmful to issuers.

Under the uptick rule, eliminated in 2007, short sellers were allowed to make their bets only when the price of a stock moves up. That would create a hurdle, but not a roadblock, for short sellers who in recent years have become a bigger part of the trading marketplace.

More…

 

Jim Sinclair’s Commentary

In terms of hyperinflation, certain to occur, this article is valid.

DB Advisors Says Commodity ‘Bull Market’ Still Intact (Update1)
By Millie Munshi

March 10 (Bloomberg) — A “secular bull market” in commodities remains intact and prices of oil and copper will rebound in the second half, according to Theresa Gusman, the head of equity research for Deutsche Bank AG’s DB Advisors unit.

Government spending in China and the U.S. will boost infrastructure construction and spur gains in demand for industrial commodities, Gusman said today. Increasing cash injections will accelerate inflation and bring gains in gold prices, she said. Limited supplies and declines in exploration budgets will also help underpin raw materials, she said.

“Policy makers are hell-bent on stabilizing the financial system,” Gusman, who manages $215 billion, said at a meeting with reporters in New York. “This will bring greater demand for commodities and make prices go higher.”

Commodities have plunged in the past eight months as the global recession eroded demand. The Reuters/Jefferies CRB Index of 19 raw materials sank 56 percent from a record on July 3 before today. The declines began after the gauge posted 29 percent jump in the first half of 2008.

More…

Jim Sinclair’s Commentary

Here is another problem certain the blow its lid.

The rise & rise of Pakistan’s Taliban
11 Mar 2009, 0155 hrs IST, Subodh Varma, TNN

In the spring of 1994, a new military force appeared in Afghanistan, the graveyard of empires. Legend has it that its first public action was in Kandahar. A local warlord had abducted two girls for serving his troops. One night, a group of young, bearded Pashtuns, wearing black turbans emerged from the darkness, stormed the base, rescued the girls and hanged the warlord from the turret of a tank.

They were called the Taliban, and soon they stormed Kabul and established one of the most brutal regimes in the world, based on a narrow fundamentalist interpretation of Islam.

Their origins lay in the western border areas of Pakistan, where thousands of Afghans, mainly Pashtuns, had fled during the decade-long jihad against the Soviet army. A whole generation of boys grew up in refugee camps in tribal areas, learning the ideology of hate and revenge. The camps and seminaries were organised by the Pakistani government, with funds received covertly from the US (for fighting communism) and openly from Saudi Arabian armchair jihadists who wanted to spread Islam. Because of their origins in madrassas, these fighters were called the "Taliban", or students.

More…

Jim Sinclair’s Commentary

Our CIGA Gold Delivery Man, JB Slear, is famous!

Where can private investors buy the cheapest gold?
By Rob Mackinlay

"Unlike futures-backed investment products which never actually take delivery of gold and silver, but continuously renew their investments in the paper markets, sophisticated investors wanting to get their hands on the real thing, buy the contract in the deliverable month and wait for it to expire.

JB Slear, a gold and silver broker based in Arizona specialises in helping high net worth clients take delivery of gold and silver futures contracts. He said that overseas buyers could face particular problems: "We’re finding more restrictions being applied to overseas buyers, seems one of the four warehouses will not allow overseas deliveries. We have just been told this by one of the Comex warehouses today. I don’t know if this is a lack of communication or not so, for the sake of all, we need to consider this a rumour till we have more people claiming the same problem."

Slear tells his clients that they may have to wait more than two weeks to take delivery as delays and complications in the process have become increasingly commonplace more so now than during the Christmas season. In some cases this has fuelled concern that stockpiles are running out. Slear is not convinced by this explanation and blames skeleton warehouse staffing for most of the delays.

But he said that the level of interest in this method of buying gold and silver had increased significantly between November and December.

The reason for the interest is obvious. Slear said: "I know of no other place in this country that offers a price equal to the Comex exchange, nothing comes close. Even with my Premium Delivery Service added, it’s far more reasonable to buy from Comex."

More…

 

Jim Sinclair’s Commentary

More on the miscreants:

The Most Dangerous Neighborhood in the United States

"Be careful."
"Keep your wallet safe."
"Don’t get your money stolen."
"Stay out of dangerous neighborhoods."

My parents used to say that to me when I was first going out on my own. I never got the definition of what a "dangerous neighborhood" was – you were just supposed to know. It was a place where people preyed on you. Predators, like jackals circling, waiting to pounce, ready to take your hard earned money from you. That’s what happens in dangerous neighborhoods. That’s why you should stay away from places like that.

As I got older, I wondered what exactly is a "dangerous neighborhood"? Most of us grew up assuming it was an area where poor people lived, people who didn’t dress well, didn’t have nice homes, didn’t have nice cars, didn’t have any interest in working for a living. People who just take and assume they’ll never get caught or even worse, don’t care if they do. However, that is a highly subjective criteria. How does one quantify that and determine the kind of place where you will most likely be separated from your money?

The Federal Bureau of Investigation provides statistics that may help us gain insight into where and how you are most likely to have your money stolen.

The FBI defines robbery as the taking of anything of value from a person by force or threat of violence. Robberies cost victims an estimated $588 million in 2007.

The FBI defines larceny-theft as the stealing of any property or article that is not taken by force or by fraud. In 2007 there were an estimated 6.6 million larceny-thefts, costing victims an estimated $5.8 billion dollars.

Securities fraud refers to deceptive practices in the stock and commodity markets including Ponzi schemes, high yield investment and hedge fund fraud and just about any way it is possible to lie about the promise of big returns on a variety of investment instruments. In 2006, the most recent year a total was listed, the FBI estimated losses at $40 billion.

More…

 

Jim Sinclair’s Commentary

In times past crowds dragged bankers out of their offices on Wall Street and hung them from lamp posts.

CORRECTED-Protesters target U.S. foreclosed-homes auctioneer
Tue Mar 10, 2009 6:19pm EDT

In March 8 story "Protesters target U.S. foreclosed-homes auctioneer," corrects story to include company’s response to protest in paragraphs 6 and 9.

NEW YORK, March 8 (Reuters) – An auction of foreclosed homes in New York City on Sunday drew protesters who blamed banks for an epidemic of home losses and called for a moratorium on evictions and foreclosures.

Two dozen people marched outside a Manhattan convention center where Real Estate Disposition Corp was auctioning off several hundred foreclosed homes, chanting and carrying signs reading "Banks get bailed out, people get thrown out."

The protesters said their argument was not with would-be homebuyers, who streamed into the auction without taking much notice, but with banks that had reaped benefits of government bailout funds after years of irresponsible lending practices.

"We’re not angry at the people who are looking for a cheaper home," said Larry Holmes, a spokesman for the Bail Out the People Movement, which staged the demonstration.

More…

Jim Sinclair’s Commentary

They predict inflation. I guarantee you hyperinflation.

Pimco Predicts Inflation, Joining Buffett, Marc Faber (Update3)
By Wes Goodman

March 11 (Bloomberg) — Pacific Investment Management Co. which runs the world’s biggest bond fund, joined investors Warren Buffett and Marc Faberin saying inflation will quicken, sounding a warning for Treasury investors.

U.S. government and Federal Reserve efforts to snap the recession will increase costs for goods and services as soon as 2010, Pimco said in a report today on its Web site by Chris Caltagirone and Bob Greer. Commodity producers are also delaying projects, which may limit supply and lead to higher prices when global growth resumes, according to Pimco.

“Inflation will rise,” Pimco said. Treasury securities that give investors protection against higher prices in the economy are “attractive now.”

Pimco is among a growing list of investors who are warning that programs to counter the U.S. slump will increase consumer prices as the economy starts to revive. Investor Jim Rogers, author of the books “Hot Commodities” and “Adventure Capitalist,” said this week U.S. policies will hurt conventional Treasuries, those that don’t offer inflation protection.

President Barack Obama is asking Congress to pass a budget that will result in a record $1.75 trillion deficit. He has already signed into law a $787 billion package of tax cuts and government spending.

More…

Jim Sinclair’s Commentary

Every day for the past few weeks the most consistent green figure has been the Libor Rate.

Libor’s Creep Shows Credit Markets at Risk of Seizure
By Gabrielle Coppola and Liz Capo McCormick

March 11 (Bloomberg) — The cost of borrowing in dollars is rising as the global recession deepens and central bank efforts to prop up the financial system fail to prevent a growing number of banks from requiring government bailouts.

The London interbank offered rate, orLibor, that banks say they charge each other for three-month loans stayed at 1.33 percent today, near the highest level since Jan. 8 and up from this year’s low of 1.08 percent on Jan. 14, the British Bankers’ Association said. The Libor-OIS spread, a gauge of bank reluctance to lend, widened to the most since Jan. 9.

Short-term borrowing costs are increasing as banks hoard cash and governments struggle to thaw credit markets after finance companies reported almost $1.2 trillion of writedowns and losses since the start of 2007. Banco Popolare SC yesterday became Italy’s first lender to seek state aid. Lloyds Banking Group Plc, the U.K.’s largest mortgage provider, ceded control to the government March 7. U.S. regulators seized 17 failing banks so far this year.

“The market is beginning to think that the solution is either not politically possible, or we can’t afford it, or maybe there isn’t a solution,” said Bob Baur, chief global economist at Des Moines, Iowa-based Principal Global Investors, which manages $198 billion of assets. Libor’s rise “is just another indication of that concern,” he said.

More…

Jim Sinclair’s Commentary

IMF sales in the 70s proved the most bullish thing for gold as it allowed major buyers in a singular prices.

Central bank gold sales never see the marketplace. This time they will provide an excellent vehicle for central banks wishing to diversify out of the US dollar.

This is no factor to the price of gold.

European Central Banks May Announce Gold Sales Accord, UBS Says 
By Claudia Carpenter

March 10 (Bloomberg) — European central bankers may extend their so-called Washington Agreement, capping gold sales, with an announcement as early as this month, according to UBS AG.

The accord that caps sales at 500 metric tons a year through September 2009 was announced in March 2004 at a meeting of the Group of 10 nations. A new agreement would most likely keep that 500-ton limit, according to John Reade, UBS analyst.

“If it doesn’t happen this month it could lead to a bit of uncertainty” in the gold market, Reade said by phone today.

Banks sold 358 tons of gold in the fourth year of the agreement through September last year, and another 48 tons through Jan. 7, according to the World Gold Council. There are 17 banks in the agreement, with the Central Bank of Cyprus the latest to join in January, according to the European Central Bank, itself a member.

More…

UPDATE 1-Singapore’s GIC sees more distress in markets
Tue Mar 10, 2009 2:35am EDT
By Kevin Lim and Saeed Azhar

SINGAPORE, March 10 (Reuters) – An official from the Government of Singapore Investment Corp (GIC) said he expects more weakness in financial markets in the next 12-18 months, and recommended investors hold gold and other safe assets such as government bonds.

GIC, one of the world’s largest sovereign funds with an estimated $200 billion-plus in assets, has invested aggressively in troubled global lenders, picking up multi-billion dollar stakes in Citigroup (C.N) and UBS (UBSN.VX) in late 2007 and early 2008.

There is "systemic capital inadequacy globally", and the world will probably see "three years of a very vicious downcycle," GIC’s director of economics and strategy, Yeoh Lam Keong, told the Investment Management Association of Singapore conference on Tuesday

"This is a very destructive process for assets."

Yeoh, who said he was speaking in his personal capacity, showed a slide prepared by GIC that indicated global writedowns in the financial sector could reach $3.8 trillion by 2013 and that only about 30 percent of the losses had been booked so far.

More…

 

Bad news on Sesame Street
Posted by Tracy Alloway on Mar 11 16:54

Sesame Workshop is cutting 20 per cent of its workforce…

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More…

Posted at 2:45 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

The recent nature of these very difficult to read markets make dogmatic assertions out of the question but it appears that gold is resuming its linkage to the Dollar, only this time in the inverse, which is what we have witnessed the vast majority of times since the bull market in gold began back in 2001. Only yesterday gold and the Dollar were moving in lockstep together with both moving lower on the recovery rally in stocks which undercut the need for safe havens in the mind of many traders. It is harder to call today because the equity markets are higher which recently has been resulting in selling pressure surfacing in gold; however, equities are backing down as I write this which usually brings buying back into gold so things are a bit cloudy. Today, the Dollar is sharply lower while bonds are also lower but gold is moving higher. That has Euro gold stabilizing over the 700 level and gold priced in British Pound terms holding above the 650 level. It would be constructive for gold in US Dollar terms if Euro gold and British Pound gold can maintain those respective levels. Keep in mind that it has been gold priced in terms of assorted major currencies, particularly those two, that has been leading the charge higher in the yellow metal.

Technically, gold bounced right off of major support in the $890-$880 level with the upper boundary of that region serving to entice dip buyers. That level also corresponds with the 38.2% Fibonacci retracement level calculated off the November high and the recent low. The 50 day moving average also comes in near that region so as you can see, technically it is a logical level from which to see a bounce higher after the recent selling.

We have the shorter term 10 day and 20 day moving averages headed lower so the bears are still in command until those are taken out and turn back higher. Gold will need to achieve a closing pit session price above $942 to bring back the momentum chasers and give it a shot at trending. For now the range trade looks more likely with support holding. We have to wait to see where resistance surfaces but a look at the charts shows that yesterday’s high and then $930 are reasonable targets to watch.

Back to the Dollar – if the USDX manages to close below yesterday’s low 87.80 it would accomplish two things – it would take out the 20 day closing average and turn the 10 day moving average down. Both are short term bearish signals. The Dollar would still have to close down below the 86.00 level to seriously threaten the longer term uptrend however which still is pointed up.

Crude oil got whacked today and it looks to me like some of those recent long crude/short gold spreads are coming off in large size after the EIA’s storage numbers were released this AM. Needless to say, that data was not particularly friendly for crude which is still trying to mount a breakout to the upside. The bottom looks to be in for crude but whether it can go anywhere is another question. We need to see demand and supply to find an equilibrium point which is apparently what the market is trying to price in and then wait for those eventual supply reductions which will certainly come since so many oil projects have been scrapped due to the low prices. Canadian tar sands need much higher prices to be profitable and many wells across the country are being shut in.

Equities looked like they might actually be going somewhere today but that was until the President made his announcement that he would sign the $410 billion spending bill. Obviously investors and traders were not impressed but then again what’s a few more hundred billion here and a few more hundred billion there in the grander scheme of things, especially when you are talking about trillions.  It is comforting to know that our children and grandchildren are getting such a “bargain”. Oh America -  “Sit tibi terra levis

The mining shares as evidenced by the HUI and the XAU are trading nicely higher having bettered the highs from yesterday which is friendly but they have some techincal work to do before a definite trending move can take place.

Bonds are very close to breaking back down technically and resuming another leg down.

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini

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Posted at 12:57 PM (CST) by & filed under Jim's Mailbox.

Jim,

The latest UBS report on gold (Click here to view the report in PDF format) says that it can potentially go to US$2,500/oz.

The exact wording is:

"Using a proprietary econometric model we have generated a probability cone for the future possible price path for gold. Using different environments for the level of inflation volatility, US dollar and absolute level of inflation we have determined that future returns on gold are likely to be positively asymmetric, with potential upside to US$2,500/oz."

They note that gold is a hedge against deflation and inflation particularly if the source of that inflation is loose monetary policy.

They recommend exposure to gold and favor gold shares.

Regards,
Christopher

Hi Jim,

"The Swiss bank, one of the most active gold dealers, warned of "a potential upside of $2,500 an ounce" as some hedge fund investors who made money last year by betting against investment banks are now buying gold as a way of betting against central banks."

This article appears in money.ninemsn.com.au and I thought you should see it.

http://money.ninemsn.com.au/article.aspx?id=769646
For all the latest news around the globe, check out ninemsn.
http://ninemsn.com.au

CIGA Eric

Eric,

This is because UBS spent more time talking about meaningless central bank gold sales. It was that which was put up on Bloomberg every 4.5 minutes from 8:30 AM to and through the end of Bernanke’s speech and pre-screened friendly question interview.

Since the gold guys spend more time looking for why they are wrong the Comex had its way with gold one more time.

Respectfully yours,
Jim

Actual ‘Letter to the Editor’ from the February 5th edition of the Wichita Falls , Texas Times Record News…

Dear IRS,
I am sorry to inform you that I will not be able to pay taxes owed April 15, but all is not lost.

I have paid these taxes: accounts receivable tax, building permit tax, CDL tax, cigarette tax, corporate income tax, dog licence tax, federal income tax, unemployment tax, gasoline tax, hunting licence tax, fishing licence tax, waterfowl stamp tax, inheritance tax, inventory tax, liquor tax, luxury tax, medicare tax, city, school and county property tax (up 33 percent last 4 years), real estate tax, social security tax, road usage tax, toll road tax, state and city sales tax, recreational vehicle tax, state franchise tax, state unemployment tax, telephone federal excise tax, telephone federal state and local surcharge tax, telephone minimum usage surcharge tax, telephone state and local tax, utility tax, vehicle licence registration tax, capitol gains tax, lease severance tax, oil and gas assessment tax, Colorado property tax, Texas, Colorado, Wyoming, Oklahoma and New Mexico sales tax, and many more that I can’t recall but I have run out of space and money.

When you do not receive my check April 15, just know that it is an honest mistake. please treat me the same way you treated Congressmen Charles Rangel, Chris Dodd, Barney Frank and ex-Congressman Tom Daschle and, of course, your boss Timothy Geithner. No penalties and no interest.

P.S. I will make at least a partial payment as soon as I get my stimulus check.

Ed Barnett
Wichita Falls

Jim,

We live in an age marked by stupidity and ignorance even though we have the most advanced technology and means of conveying information ever devised yet by man.

Sitting here watching these dumbasses throwing gold out the window in the midst of what is occurring is something I did not believe men were capable of.

I guess we all learn each day… never underestimate the ability of the American citizen to be so damn dense….

CIGA Frustrated

CIGA Frustrated,

To this all I can add is AMEN Brother.

Jim

 

Jim,

Have you been asked by the decision makers for advice? I guess not as you will tell like it is.

Everyone knows (at least by now) what the truth is but to take the right path is too damn hard to take.

Such brilliance in your analysis and a shame you are not being consulted and then to listen to the garbage from the media experts, talking heads, etc.

I guess the day Man can legislate Conscience it will be the end, but it is impossible.

Another enlightening comment: God created earth, water and air for all the living. Two of them man has been able to legislate – i.e. mine, yours… Air is the only thing man has not been found to be that brilliant to legislate. Just imagine if they could legislate AIR!!

CIGA Shakeel

Dear Shakeel,

It was a great American, Chief Seattle, that asked; "How can you sell air?" Wall Street did. Air is called OTC derivatives.

If governments took only one thing I know seriously, I would hope it is the danger of Pakistan in Taliban hands. That one can change the face of the planet.

Respectfully,
Jim

 

Dear Jim,

I remember seeing many years ago a chart of a cup and handle for gold, it appears we have another one! It looks like gold will double very soon.

Again you look spot on for your target of 1650 on or before Jan 14, 2011!

Best,
CIGA BT

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Dear CIGA BT,

Yes, and there is no power on the planet that can stop this. The consequences of these actions are only a matter of time.

Jim

Posted at 4:42 PM (CST) by & filed under General Editorial.

Dear CIGAs,

The following article is an excellent review of the Fed payouts to OTC derivative winners via their brokers.

Bailout Mo’ Money
Catherine and News & Commentary,
March 9, 2009 at 11:03 am
http://solari.com/blog/?p=2258#more-2258

We thought we would dig out the data to update Bloomberg’s calculation of November 2008 that totaled the bank bailouts at $8.5 trillion.

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Here is our list of additional commitments:

I. $750 Billion for Bank Bailout

There is reportedly $750B in the President’s 2010 FY budget for “the banks.”  An MSNBC article on 2/26/08 [http://www.msnbc.msn.com/id/29415050/] quotes Treasury Secretary Geithner as saying this is merely a “placeholder” in case of further deterioration of the economy and indicates the purpose of such funds would be further purchases of troubled assets.  CBO scoring of this budget item results in a net expenditure estimate of $250B (meaning that, based upon the quality of assets purchased in the TARP program so far, the government would recover $.78 for every asset purchase dollar).  OMB’s recovery estimate is a more conservative $.66 for each purchase dollar.  Of course, this is not a final number until appropriated by Congress, and many changes will be made to the budget before it is final.

II. $787 Billion for the Stimulus Package, adopted by Congress as part of the American Recovery and Relief Act of 2009.

III. $1 Trillion for the Financial Stability Plan:

$500B has been deposited into a Stability Trust.

$500B – $1 Trillion is set for later deposit into a Public/Private Investment Fund.

The government’s fact sheet does not make clear whether the whole amount is public investment, however, as some press reports would seem to imply.  Treasury Secretary Geithner’s speech as reported in the Washington Post seems to indicate that $1T is the total available to lend, so that amount would also include the private money being “leveraged.”  This interpretation would be consistent with the $500B figure reported by the New York Times as the amount of the bailout related to the Public/Private Investment Fund.

IV. TALF – funded from TARP

On March 3, 2009, Treasury and the Federal Reserve announced the creation of the Term Asset-Backed Securities Loan Fund (“TALF”) “designed to catalyze the securitization markets by providing financing to investors to support their purchases of certain AAA-rated asset-backed securities” as a “component” of the Consumer and Business Lending Initiative (“CBLI”), which is established under the Emergency Economic Stabilization Act of 2008.  This seems to indicate the government component of this facility would be funded with TARP funds.  The Treasury press release states that the Federal Reserve Bank of New York will lend up to $200B to eligible owners of AAA asset-backed securities secured by auto, student, credit cared and SBA-guaranteed small business loans. CBLI guidelines provide that the government’s investment comes in the form of a Treasury investment in special purpose vehicles of Federal Reserve banks (like TALF). Notably, it also states that TALF was formed “to purchase collateral that borrowers from the SPV may forfeit” and that Treasury will share in the gains and losses of the SPV.

V. Exchange Stabilization Fund – Fed liabilities for money market fund losses – potential $46 – $50 Billion reduction in bail-out costs as reported by Bloomberg

According to the U.S. Treasury website, the $50B facility at Exchange Stabilization Fund to cover potential losses at money market funds only lasts (as extended) until April 30, 2009 unless the facility is extended again.   Statements on the site seem to anticipate that Treasury probably will not extend it.   Assuming there are no additional money market fund claims for losses, $46B would be SUBTRACTED from the Bloomberg list after April 30, 2009. [NOTE: The Bloomberg chart shows $50B under Treasury programs, Treasury Exchange Stabilization Fund with the description "buys and sells short-term notes to moderate fluctuations of foreign securities” and a $540B commitment ($0 tapped) by the Fed described as "buys financial assets from financial companies to bolster money-market mutual funds.”  Recall earlier that the bailout chart offered by the New York Times in early February shows that Treasury spent $4B to cover losses on the liquidation of the Reserve US Government Fund.  If the NYT account is accurate, ESF and not the Fed took this loss.]

VI. $2.274 Trillion Fed overnight lending facility

According to the New York Times, the Fed’s overnight lending was expanded to $2.4T.   The Bloomberg chart seems to be counting $128B in that category — $10B under “overnight loans” and $118M under “secondary credit.

VII. $50 Billion More for Citigroup

On Friday, February 27, the government announced a conversion of $25B of Citigroup preferred stock into common stock, resulting in a 38% government stake in Citigroup.  Reportedly, there is no additional cash infusion, but, according to the Option ARMageddon site:

“The move is an acknowledgment that more than $50 billion in government capital and a backstop on more than $300 billion in troubled Citigroup assets haven’t been enough to stop the bank’s slide.”

VIII.   $ 50 Billion Additional AIG bailout [see: Federal Reserve Press Release]

The AIG bailout (originally, all in the form of an $85B line of credit for an 80% stake in the company) grew, but by how much is not clear.  The Bloomberg chart indicates that $123B was committed by the Fed and $87B was actually taken down [all other sources refer to an $85B line of credit, so Bloomberg either knows something no one else does, or this is a mistake].

On March 3, CNN’s online site reported as follows:

“The U.S. government’s role as a savior to AIG began in September, with a two- year, $85 billion credit line. Since then, it has grown; currently, the government is offering up to $173.3 billion in assistance.”

This $173.3B appears to include the original $85B.

The Wall Street Journal [http://online.wsj.com/article/SB123599072033008283.html] reports the following sequence of events [March 3]:

“The bailout of AIG has gotten bigger, and taxpayers have taken on more risk:

Sept. 16: The government extends AIG a two-year loan of up to $85 billion, and gets a 79.9% stake in return.

Oct. 8: Bailout loans increase to nearly $123 billion due to problems in AIG’s securities-lending program.

Nov. 9: The rescue package increases to $150 billion, including a new $40 billion federal investment.

March 1: The government makes $30 billion in TARP money available and cuts the loans to up to $25 billion.”

It is not clear what the “$40B federal investment” is. The Fed’s website says that the government exchanged its $40B cumulative preferred shares in AIG for new preferred shares that more closely resemble common equity, so it is likely there is no “new” $40B investment.  The reduction of the “government” loans to $25B is actually a reduction of the $60B revolving credit facility put up by the Federal Reserve Bank of New York, not the government, so, essentially, the government’s commitment of TARP funds reduces the obligation of FRBNY.  The Fed website [http://www.federalreserve.gov/newsevents/press/other/20090302a.htm] discloses that FRBNY holds a lien on a substantial portion of AIG assets as well as preferred stock in two new entities formed to hold all of the stock of two life insurance holding company subsidiaries of AIG (valued at $26B).  The lien position means that the FRBNY has a superior position to that of Treasury as equity holder.

A third update on Bloomberg on March 3 reports:

“AIG is getting as much as $30 billion in new government capital and relaxed terms on its bailout announced yesterday.”

In a March 2 article, Reuters reports that the government’s exposure following the new bailout terms is $163B. On March 8, theInternational Herald Tribune, apparently using Reuters as a source, pegs the exposure at $160B. Other headlines in the first week of March report that Senate leaders grilled regulators about the “$180B AIG Bailout”.

Note: Bloomberg originally reported that the initial line of credit was backed by Treasury, but no other reports on the increased commitments mention a Treasury back-up.  One thing is clear: the blurring of the distinctions between the interests of the “government” and of the FRBNY in the press and the failure of the press to give accurate, complete and critical accounts of the AIG bailout terms, including the superior position of FRBNY to that of Treasury, has left the taxpayers largely in the dark.

IX. $470 Billion Proposed increase in authority of FDIC to borrow from Treasury

On March 3, Senator Dodd introduced a bill to expand FDIC’s line of credit with Treasury from $30B to $500B until the end of 2010.  End-of-2008 reserves at FDIC were only $19B.  The new borrowing authority would be limited to $100B unless consent of FDIC, Treasury Secretary Geithner, the Federal Reserve Board and the White House have been obtained.

Posted at 4:37 PM (CST) by & filed under General Editorial.

Dear CIGAs,

The following is a graphical illustration of just what one trillion dollars looks like.

What does one TRILLION dollars look like?
From http://www.pagetutor.com/trillion/index.html

All this talk about "stimulus packages" and "bailouts"…

A billion dollars…

A hundred billion dollars…

Eight hundred billion dollars…

One TRILLION dollars…

What does that look like? I mean, these various numbers are tossed around like so many doggie treats, so I thought I’d take Google Sketchup out for a test drive and try to get a sense of what exactly a trillion dollars looks like.

We’ll start with a $100 dollar bill. Currently the largest U.S. denomination in general circulation. Most everyone has seen them, slightly fewer have owned them. Guaranteed to make friends wherever they go.

clip_image001

A packet of one hundred $100 bills is less than 1/2" thick and contains $10,000. Fits in your pocket easily and is more than enough for week or two of shamefully decadent fun.

clip_image002

Believe it or not, this next little pile is $1 million dollars (100 packets of $10,000). You could stuff that into a grocery bag and walk around with it.

clip_image003

While a measly $1 million looked a little unimpressive, $100 million is a little more respectable. It fits neatly on a standard pallet…

clip_image004

And $1 BILLION dollars… now we’re really getting somewhere…

clip_image005

Next we’ll look at ONE TRILLION dollars. This is that number we’ve been hearing so much about. What is a trillion dollars? Well, it’s a million million. It’s a thousand billion. It’s a one followed by 12 zeros.

You ready for this?

It’s pretty surprising.

Go ahead…

Scroll down…

Ladies and gentlemen… I give you $1 trillion dollars…

clip_image006

(And notice those pallets are double stacked.)

So the next time you hear someone toss around the phrase "trillion dollars"… that’s what they’re talking about.

Posted at 3:43 PM (CST) by & filed under Guild Investment.

WHAT HAPPENED TO THE IDEAS OF PAUL VOLCKER

Why have we not heard any acceptance of the ideas of Paul Volcker?  Why are we hearing more about the ideas of Tim Geithner, who has thus far been a poor Treasury Secretary?   Mr. Volcker, the former U.S. Federal Reserve Chairman, a democrat, and the man who stopped the inflation of the 1970′s, is a U.S. economic hero.

President Obama has appointed him as chairman of a presidential economic advisory council, but thus far, the administration has not accepted or implemented any of his ideas.  Rather, they have been going with the confused and inadequately described plans of Mr. Geithner.  This has given rise to the view by many seasoned observers that the U.S. government does not know what to do!

The administration has thus far been unwilling to allow the ideas of Mr. Volcker to be shared on a national stage.  In our opinion, Volcker is one of the best people to formulate and implement the plan.

Recently, he has given a couple of speeches outlining his plans; one speech in Canada and one in the U.S.  To us, his plans appear to be concise, logical, and workable.  Rather than go into the details of his plan in this missive, let us say it involves returning to the rules that existed prior to 1999; in effect reinstating much of the old Glass-Stegal act, and disallowing commercial banks from taking on as much risk as they were able to take after that date. 

In contrast, Secretary Geithner’s plan seems to allow the miscreant big banks to return to the way of doing business that created the problems after the crisis ends.  We do not understand why the current plan, which appears confused and inadequate is being pursued.

THUS FAR THE MARKETS ARE TERRIFIED OF PRESIDENT OBAMA’S BUDGET AND HOUSING PLANS

We speak with many professional and individual investors.  The great majority of those with whom we have spoken believe that there is a good chance that they are going to be hurt by the administration’s budget and housing proposals.

Since the plans were announced the stock markets have practically been in freefall.  This has led to the world stock markets becoming oversold, and we would not be surprised to see a rally.

CLASS WARFARE RHETORIC IS HARMFUL

Global investors are also terrified of the class warfare rhetoric which is more and more frequently being heard in parliamentary bodies worldwide and in the global media.  This type of negative rhetoric can only weaken the world economy, and the future economic well being of everyone.

THIS IS NOT A TRIVIAL ECONOMIC DECLINE WORLDWIDE

Many countries are experiencing severe suffering.  This is inexorably leading to more protectionism everywhere.  Jeffrey E. Garten, a professor at the Yale School of Management who held economic and foreign-policy posts in the Nixon, Ford, Carter and Clinton administrations argued in a Wall Street Journal articled titled "The Dangers of Turning Inward" how countries’ attempts to protect their own companies and workers from the economic crisis will cause severe financial and political damage.  The article can be found here:  Wall Street Journal

CHINA AND THE GLOBAL DEPRESSION

China grows, and everyone acts as if it is a surprise.  We have followed China for many years, and have been calling for strong Chinese growth in 2009.  This is not due to our personal wisdom.  It is largely due to the work of our three favorite economists based in China, who have been remarkably accurate in the past.  We also have seen the work of twelve or more China based economists who have not been accurate in the past.  Our bullish outlook for the Chinese economy is being corroborated by the economic data and from the statements from their government officials.

China will grow in 2009.  It will grow much more than any other country of any size.  Realistically however, China’s growth alone, or even when combined with slower growth from India, will not be enough to create any semblance of growth in Europe and North America.

The global depression in Europe and the U.S. will continue and accelerate in coming months.

SUMMARY

We continue to see a repatriation of overseas money by frightened U.S. investors back to the United States, which has strengthened the U.S. dollar versus most other currencies.  In our opinion, the dollar will eventually decline in value and we recommend that everyone watch to be sure that they are out of U.S. dollars when this takes place.

We believe that the U.S. and much of the world could see a stock market rally soon.  This rally could be an opportunity for those investors who still own a lot of U.S. stocks to create liquidity for their portfolios.  Longer-term, we believe the agriculture and gold sectors will perform well, and for those who sell short, we will continue to look for overvalued situations to sell short after the market rallies.

Many have asked us if we think inflation will return.  We definitely do think it will return, but not in 2009.  It will return because many governments worldwide are increasing their money supplies, and once the banking system returns to operating effectively, the velocity of money will rise.  In our opinion, this will lead to a rise in inflation, and when inflation returns to the U.S., it will make itself felt worldwide.

It is interesting to note that in an interview yesterday, Warren Buffet agreed with the inflation thesis.  He is joining a group of prominent economists and business people who believe that the current world economic policy, will lead inexorably to worldwide inflation.

Thanks for listening.

Monty Guild and Tony Danaher
www.GuildInvestment.com

Posted at 3:39 PM (CST) by & filed under In The News.

“When you see that trading is done, not by consent, but by compulsion — when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see money flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and pull than by work, and your laws don’t protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed.”
–Ayn Rand, Atlas Shrugged (1957)

Dear CIGAs,

Here is an interesting question concerning the mark to market requirement for financial organization’s valuation of their so called assets.

"If you remove the requirement for mark to market of financial assets, can you calculate asset valuation selectively such as only up valuation but not down valuation?"

Does extreme times require extreme lies? Do the ends really allow any means? Does the accomplishment of fake valuation really make the damage that will be done over coming decades worthwhile? You could not count on any balance sheet as truthfully communicating worth. No, the ends here do NOT justify the means.

 

Jim Sinclair’s Commentary

The following is a video of the Bernanke-Sanders exchange courtesy of CIGA Anthony.

Jim Sinclair’s Commentary

I believe I covered this in my answer to Greg Hunters question yesterday, however this article does cover his point in much more detail.

Number One Reason to Own Gold
By Patrick A. Heller, Market Update
March 10, 2009

What do the following industry-leading companies have in common?

Alcoa, AIG, AMBAC, American Express, AMR (American Airlines), Bank of America, Bear Stearns, CBS, Citigroup, Countrywide Credit, Delphi, Dow Chemical, Eastman Kodak, Fannie Mae, Ford, Freddie Mac, Gannett, General Electric, General Motors, Goodyear Tire, Harley-Davidson, The Hartford, International Paper, JDS Uniphase, Lear, Lehman Brothers, Liz Claiborne, Macy’s, MBIA, Merrill Lynch, MetLife, MGIC, MGM, Motorola, JC Penney, Prudential, Saks, Sears, SprintNextel, Tenet Healthcare, UAL (United Airlines), United States Steel, Wachovia Bank, Washington Mutual, Whirlpool, and Xerox.

The answer: Since the middle of 2007, all of these companies have seen their stock values decline by more than 80 percent.

At the close of markets on June 29, 2007, gold was at $648. Its price now is more than 40 percent higher than it was then. Gold has outperformed the stocks in these companies by at least seven-fold in the past 20 months.

This example is a perfect demonstration of the number one reason to own gold. The best purpose for owning gold is for insurance against calamities that may affect the values of paper assets. The concept of owning insurance is not to make a profit by collecting on it (no one wants to be in a car accident, have their house burn down, lose valuable possessions to burglars, and so forth), but to have some protection just in case bad things come to pass. Gold serves to preserve and protect wealth.

Gold provides a stable form of money to facilitate commerce. An ounce of gold may temporarily hold a particular exchange rate versus dollars, pounds, euros, pesos, yen, francs, etc., but the value of these fiat currencies can and do change, usually downward. So far in history, there has never been a paper currency that has not eventually failed. In contrast, an ounce of gold from six thousand years ago is still worth an ounce of gold today.

Physical gold in your immediate possession is an asset that is not anyone else’s liability, so it has no counterparty risk. While the value of gold can fluctuate as measured in paper currencies, it has never suffered as much as these stocks of the companies listed above.

More…

 

Jim Sinclair’s Commentary

Today in Pakistan.

Pakistan: has it reached the edge of the precipice?
Posted by: Myra MacDonald
March 10th, 2009

Maybe this always happens at times of national upheaval. But there is a surprising disconnect between the immediacy of the crisis facing Pakistan as expressed by Pakistani bloggers and the more slow-moving debate taking place in the outside world over the right strategy to adopt towards both Pakistan and Afghanistan.

Reading Pakistani blogs since confrontation between the country’s two main political parties explodedand comparing them to international commentaries is a bit like watching men shout that their house is on fire, and then panning over to the fire station where the folks in charge are debating which type of water hose works best.

With lawyers and supporters of opposition leader Nawaz Sharif vowing to blockade parliament later this week over the refusal of President Asif Ali Zardari to reinstate fired judges, the country is steeling itself for violent street protests, which in turn could provide easy targets for suicide bombers seeking to add to the mayhem. Sharif has talked about “a prelude to a revolution”, prompting the government to threaten him with charges of sedition.

Writing in Pak Tea House, a blogger who had insisted right up until February that Pakistan would turn out all right said this had been based on the assumption political parties would pull back from outright confrontation in the interests of the country. “I was wrong. And so faced with altered facts, I have changed my opinion. Pakistan is unraveling.”

More…

Jim Sinclair’s Commentary

Today there was a release of what was termed an internal memo at Citi saying things are going very well this quarter.

This internal memo is nothing more than a plausible denial PR campaign.

US Already Preparing Next Citigroup Bailout (C)
Joe Weisenthal|Mar. 10, 2009, 5:43 AM

Three bailouts later, and Citigroup (C) is still a $1 stock. Hence the government is already engaged in "contingency planning", says WSJ, on the off-off chance that thinks take a turn for the worse.

What would that turn for the worse be? An actual bank run. Already Citi’s CDS are trading at blowout spreads, an ominous sign given how much intervention there’s already been, but bank executives swear there have been no hints of a run. Really.

Again, it’s all contingency planning, and whoever leaked this story to the Journal says they don’t expect to have to go through with it.

More…

Jim Sinclair’s Commentary

People selling their insurance might just be a tad early.

Too big to fail? 5 biggest banks are ‘dead men walking’
By Greg Gordon and Kevin G. Hall, McClatchy Newspapers Greg Gordon And Kevin G. Hall, Mcclatchy Newspapers – Mon Mar 9, 5:19 pm ET

WASHINGTON — America’s five largest banks, which already have received $145 billion in taxpayer bailout dollars, still face potentially catastrophic losses from exotic investments if economic conditions substantially worsen, their latest financial reports show.

Citibank, Bank of America , HSBC Bank USA , Wells Fargo Bank and J.P. Morgan Chase reported that their "current" net loss risks from derivatives — insurance-like bets tied to a loan or other underlying asset — surged to $587 billion as of Dec. 31 . Buried in end-of-the-year regulatory reports that McClatchy has reviewed, the figures reflect a jump of 49 percent in just 90 days.

The disclosures underscore the challenges that the banks face as they struggle to navigate through a deepening recession in which all types of loan defaults are soaring.

The banks’ potentially huge losses, which could be contained if the economy quickly recovers, also shed new light on the hurdles that President Barack Obama’s economic team must overcome to save institutions it deems too big to fail.

More…

 

Jim Sinclair’s Commentary

Maybe this internal memo missed the media’s attention.

Regulatory reports show 5 biggest banks face huge losses
By Greg Gordon and Kevin G. Hall | McClatchy Newspapers

WASHINGTON — Five of America’s largest banks, which already have received $145 billion in taxpayer bailout dollars, still face potentially catastrophic losses from exotic investments if economic conditions substantially worsen, their latest financial reports show.

Citibank, Bank of America, HSBC Bank USA, Wells Fargo Bank and J.P. Morgan Chase reported that their "current" net loss risks from derivatives — insurance-like bets tied to a loan or other underlying asset — surged to $587 billion as of Dec. 31. Buried in end-of-the-year regulatory reports that McClatchy has reviewed, the figures reflect a jump of 49 percent in just 90 days.

The disclosures underscore the challenges that the banks face as they struggle to navigate through a deepening recession in which all types of loan defaults are soaring.

The banks’ potentially huge losses, which could be contained if the economy quickly recovers, also shed new light on the hurdles that President Barack Obama’s economic team must overcome to save institutions it deems too big to fail.

While the potential loss totals include risks reported by Wachovia Bank, which Wells Fargo agreed to acquire in October, they don’t reflect another Pandora’s Box: the impact of Bank of America’s Jan. 1 acquisition of tottering investment bank Merrill Lynch, a major derivatives dealer.

More…