Posted at 2:06 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

Generally when an entity is at the level shown on the chart caution would be in order. On the longer term however I am in agreement with this article.

The Loonie Looks Ready to Fly
March 04, 2010

The rebound over the last year in the Canadian dollar has left the Bank of Canada in a bit of a quandary. The strong Canadian dollar has proven to be a challenge for Canadian exports as it has made Canadian goods and services more expensive. This leaves the policy makers at the Bank of Canada between the proverbial “rock and a hard place”.

If it decides to raise interest rates aggressively and the U.S. Federal Reserve decides that it can afford to wait to raise interest rates in the U.S., it is likely that the Canadian dollar could be in for a prolonged period of appreciation. The implication for Canadian exports is clearly negative.

The central bank knows that it has to be mindful of preventing inflationary pressures from taking root. On the other hand, Canadian interest rates can only go so far ahead of U.S. interest rates. If the spread between the two countries’ interest rates widens too far in Canada’s favour, then the Canadian economy could be hit with the sledgehammer combination of high interest rates, a surging Canadian dollar and by extension a slumping export sector. Not to mention the fact that many consider the Canadian housing market to be overheated – which is yet another concern for Canadian monetary policy makers.
One other variable that Canada would have to consider is that as the Canadian dollar has become increasingly popular amongst investors around the world, foreign inflows of capital are likely to stay strong – again putting upward pressure on the “loonie”.

As exports tend to slow down with a strong Canadian dollar, imports and spending by Canadians abroad is rising. The number of Canadians doing their shopping in the U.S. has been steady and rising as they take their newfound purchasing power to get bargains on lower-priced U.S. goods. For Canadian retailers, this has to be an area of concern. We can also look to the Paper and Forest sector to be severely impacted by the dollar’s strength.

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Jim Sinclair’s Commentary

Here is more reasons why China is so interested in Nickel.

Three Reasons the Nickel ETF Is Soaring
March 04, 2010

Since the most recent global recession began (and the subsequent stimulus measures took effect), many of the relationships between asset classes that have historically guided investment decisions have weakened considerably. The correlation between US equity and bond markets has gone through the roof, an indication of an increasingly liquidity-driven market.

Commodities, which have traditionally been embraced for their low correlation with stocks and bonds, have frequently moved in lockstep with equities, as demand for many resources is now dependent on the health of the global manufacturing industry (see Five Ways To Give Your Portfolio Much Needed Diversification) .

So far in 2010, many metals have moved in response to changing outlooks for demand in emerging markets, which now account for a significant portion of global demand (copper, which is primarily derived from Chilean mines, has obviously been impacted by some unforeseen circumstances).

To this point in 2010, one metal has distanced itself from the pack, boosted by increasingly strong demand. Nickel prices have skyrocketed this year, as the iPath Dow Jones-UBS Nickel Subindex ETN (JJN) has gained more than 20% to date in 2010 and is up about 40% since early December. The metal’s impressive run-up has investors wondering just how long the nickel rally can last. A look at the three primary factors driving prices sheds some light on the issue:

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Jim Sinclair’s Commentary

Note the comments in this article regarding bank losses when given TRUE value. That implies Freddie and Fanny are not giving a market value to these loans that either failed or are improperly written.

Fannie, Freddie Ask Banks to Eat Soured Mortgages (Update1)
By Bradley Keoun

March 5 (Bloomberg) — Fannie Mae and Freddie Mac may force lenders including Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co.and Citigroup Inc. to buy back $21 billion of home loans this year as part of a crackdown on faulty mortgages.

That’s the estimate of Oppenheimer & Co. analyst Chris Kotowski, who says U.S. banks could suffer losses of $7 billion this year when those loans are returned and get marked down to their true value. Fannie Mae and Freddie Mac, both controlled by the U.S. government, stuck the four biggest U.S. banks with losses of about $5 billion on buybacks in 2009, according to company filings made in the past two weeks.

The surge shows lenders are still paying the price for lax standards three years after mortgage markets collapsed under record defaults. Fannie Mae and Freddie Mac are looking for more faulty loans to return after suffering $202 billion of losses since 2007, and banks may have to go along, since the two U.S.- owned firms now buy at least 70 percent of new mortgages.

“If you want to originate mortgages and keep that pipeline running, you have to deal with the push-backs,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, and former examiner for the Federal Reserve. “It doesn’t matter how much you hate Fannie and Freddie.”

Freddie Mac forced lenders to buy back $4.1 billion of mortgages last year, almost triple the amount in 2008, according to a Feb. 26 filing. As of Dec. 31, Freddie Mac had another $4 billion outstanding loan-purchase demands that lenders had not met, according to the filing. Fannie Mae didn’t disclose the amount of its loan-repurchase demands. Both firms were seized by the government in 2008 to stave off their collapse.

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Jim Sinclair’s Commentary

You have to know that what I told you on the Greek bond sale is 100% correct.

Their first try to sell bonds two weeks ago was withdrawn due to the lack of buyers. The second try got a little help not from real investors, as the article says, but even those were a central bank or two.

The US banks were dropped because of CDS utilization to cover their actually short Greek bond positions.

I have been told there was a $9.9 billion dollar profit in this transaction that has been closed.

Banks shut out of Greek bond sale
guardian.co.uk, Thursday 4 March 2010 20.52 GMT
Elena Moya

Greece, which has said it will not succumb to "speculators", shut the door on banks and hedge funds in its latest bond sale, and dropped Goldman Sachs and other US investment banks as transaction managers.

"We targeted real money investors, like insurance companies, mutual funds, instead of banks and hedge funds – we directed the transaction away from them," Petros Christodoulou, the new head of Greece’s debt management office, told the Guardian. "I felt that real money investors are more long-term players, whereas [the others] are more short-term."

Leaving out hedge funds and banks is "very unusual", said Ashok Shah, chief investment officer at London & Capital. "You need to have a fluid market, and you can rarely place an issue with bond investors who don’t trade, they do need the market, and they need the market to be a bit calmer than what it has been."

The last bond sale three weeks ago included US banks such as Goldman Sachs and Morgan Stanley. Goldman Sachs has been criticised for a derivatives trade at the start of the decade that helped Greece reduce its debt figures. Goldman Sachs officials have said it should have been more transparent.

Greece wants long-term investors to bring stability to its finances. Hedge funds and other institutions have been betting the country could be near to a default. In the past two months, they have bought credit default swaps, or protection against a potential default, pushing its price higher. These instruments are seen as signs of market sentiment, ultimately putting more pressure on Greece. The EU is conducting an investigation of this market, and Spanish President José Luis Rodríguez Zapatero said he hoped to see new CDS regulation during his country’s EU presidency, which expires in June.

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Jim Sinclair’s Commentary

This excellent report is much more than a few bullet points, it is a complete discretion of each in report style.

I find it a must so I understand the real condition being misreported.

"No. 284: February Employment and Unemployment "
http://www.shadowstats.com

- Payroll Drop of 36,000 was 51,000 Net of Census Hiring 
- Broader February Unemployment Measures Rose: 
U.6 at 16.8% (up 0.3%), SGS at 21.6% (up 0.4%) 
- Economy Remains Headed into Deepening Downturn

Jim Sinclair’s Commentary

When thinking about employment stats, also look to the release of A-15 Alternative Measures of Labor Underutilization.

Economic News Release
Current Employment Statistics – CES (National)

Table A-15. Alternative measures of labor underutilization

HOUSEHOLD DATA
Table A-15. Alternative measures of labor underutilization Percent

Measure

Not seasonally adjusted

Seasonally adjusted

Feb.
2009

Jan.
2010

Feb.
2010

Feb.
2009

Oct.
2009

Nov.
2009

Dec.
2009

Jan.
2010

Feb.
2010

U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force

3.7

5.9

6.0

3.5

5.7

5.8

5.9

5.8

5.8

U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force

5.9

6.9

7.0

5.1

6.7

6.5

6.3

6.1

6.2

U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)

8.9

10.6

10.4

8.2

10.1

10.0

10.0

9.7

9.7

U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers

9.3

11.2

11.1

8.7

10.6

10.5

10.5

10.3

10.4

U-5 Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force

10.1

12.0

11.9

9.4

11.5

11.3

11.4

11.2

11.1

U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

16.0

18.0

17.9

15.0

17.4

17.2

17.3

16.5

16.8

NOTE: Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule. Updated population controls are introduced annually with the release of January data.

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Jim Sinclair’s Commentary

The media looks upon raiders as investors. Maybe that is the new definition.

Speculators Eye Next Prey
How Safe Is Britain’s Proud Pound?
By Carsten Volkery in London

First the euro, now the pound. Britain’s currency is coming under massive pressure as speculators bet that the UK’s national debt will soon get out of hand. Like Athens, London has its share of problems — and the Brits don’t have any euro zone partners to back them up.

Schadenfreude may be a German word, but it has never been a foreign concept in Great Britain — particularly in recent months as the British watch the trials and tribulations of the European common currency, the euro. The budgetary and debt problems facing Greece, Portugal, Italy, Ireland and Spain have merely reinforced their conviction that staying out of the euro zone was the right decision. Unlike Berlin, London is not under pressure to come to the aid of Athens.

But speculators have not just taken aim at the euro in recent days. The British pound, too, has become a favored target — showing Brits how vulnerable their own currency may actually be. At the beginning of the week, the pound slid to a 10-month low of just $1.4781. Since then, the pound has staged a mini-recovery, moving back above $1.50 on Wednesday. But market pressure on the British currency is not likely to disappear overnight.

Alarm on the Markets

The most immediate trigger for the recent currency swoon came in the form of political surveys which indicated that a Conservative victory in general elections (which will likely be held in early May) may not be a foregone conclusion. Markets were alarmed out of fear that a close election could make it difficult for parliament to pass a strict package of savings measures.

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Jim Sinclair’s Commentary

If FASB blesses lies concerning the inventory of banks and financial institutions why should the FHA tells the truth?

FHA understates risk exposure.
The Federal Housing Administration has understated how much risk it has taken on, according to a group of economists from the New York Federal Reserve and New York University. The FHA is overlooking factors that could signal higher losses, said the group, making it more likely that the agency will have to ask for taxpayer funds. As many as 40% of FHA-insured mortgages are worth more than the homes that secure them, and as many as 14% of the mortgages may be for more than 115% of the home’s value. The FHA’s calculations put the latter figure at 6%.

Posted at 1:57 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Gold put in a decent performance today which coming on a Friday with a jobs report being released is actually encouraging. Over the years we have seen so many of these payroll report days in which gold gets pummeled for no other reason than the bullion banks decide to beat up on the metal. That strength, even in the face of very obvious orchestrated selling such as today’s, is impressive.

Gold rallied just shy of yesterday’s session high before the attack began which further illustrates my recent point that the gold selling Banshees at the Comex are furiously attempting to prevent this week’s high from being taken out since that will trigger a tremendous amount of new buying which will take price up to the last level of resistance just above $1,150 that stands between gold and a retest of $1,200.

Yesterday’s open interest increase of some 7,200 contracts indicates that dip buyers were active, a good sign as the OI is pushing close to 500,000 once again. That is exactly what gold needs to push through the overhead resistance presented by the bullion banks – new spec interest in the long side. Interestingly enough both the most active April as well as the June saw fresh buying coming in. Generally this close to the roll one sees speculative money move into the next month.

Once again, both Euro gold and British Pound priced gold made new lifetime highs at the PM Fix today with €836.527 and £755.307 respectively being the fixes. A bit later in today’s session, both the Euro and Pound bounced off their lows once again. Both trades are quite lopsidedly short so some of the bears are no doubt ringing the cash register.

The Dollar while weaker just will not break down technically but looks to be grinding sideways with bears unable to press it down through important chart levels while bulls do not seem to be able to muster enough momentum to take it up through 81. For the very short term, they appear to both be stalemated.

The jobs number came out this morning and had Wall Street giddy with excitement that “only” 36,000 jobs were lost. What do we get as comments: “that is a fairly strong employment report.” Let’s see, that means the last 25 out of 26 months this nation has been shedding jobs and folks are excited about that? Are they out of their damn minds?

Tell that to the folks who are out of work and unable to find a decent waged position. By the way, the U6 number, which includes discouraged workers and those working part time who want to work full time but have been unable to do so rose to 16.8% from 16.5% the previous month. Obviously, the spinmeisters did not want to touch that one with a ten foot pole.

I do not know exactly what the public relations blitz that the Caesar’s were putting out while Rome was disintegrating around them but something tells me that it was probably not all that different than what this current crop of market analysts and financial TV talking heads are serving up for public consumption. How much more of this, “It’s not as bad as we were fearing therefore it is great” BS do we have to endure from these hucksters? Well, one thing is for sure, this so-called, “JOBLESS” recovery is certainly living up to its name.

The way I look at it that is another 36,000 folks who will not be buying LCD TVs, autos, boats or even furniture and other major appliances.

Oh, and by the way, temporary hiring of those workers to conduct the US Census added 15,000 workers in further proof that the only thing growing in this economy is the size of the federal government. Yes siree Bob – now that’s a long term career move. You get to annoy and generally pester US citizens with all manners of irrelevant and unconstitutional questions such as “how much money do you make?” or “what color is your underwear?” and the Feds pay your salary with the tax dollars of these same people that you get to harass. Is this a great country or what?

Back to gold – the ability of gold to generate buying ABOVE the $1,130 level is a technical plus. It is also trading above all the major moving averages which plants the market firmly on a bullish footing. The RSI has not yet punched through the resistance level shown on the price chart which is about the only fly in the ointment that I can see right now as the mining shares are also putting in a good performance.

The HUI is strong today but thus far has not bettered this week’s high made on Wednesday up at 433. It will need to take that out to mount a push up towards 449 – 451. Support is between 410 – 405 should 420 – 419 fail to attract sufficient buyers on any setback in price.

The S&P 500 finally overcame that pesky overhead selling resistance near 1125 and is solidly higher here at midday. That is also helping the mining shares as today more of those hedge fund ratio spreads against the miners are being unwound with the metal selling more selling that the mining equities.

Something to keep an eye on is the crude oil market. It is up today reaching $82 at one point. Crude has been trapped in a very broad price range since late last year with the peak of that range up near $84. Technically, the chart looks strong and if bulls can put in a strong finish to this week, they have a good shot at attempting to reach the upside early next week. Crude oil prices that begin trending (they need to push solidly above 84 on good volume) will also help to shore up the gold market as it will indicate that deflation fears are fading in favor of inflationary ones. Stay tuned because the jury is still not out on this however.

Bonds were whacked hard today on the “happy” jobs number. They too are going no where fast and remain mired in a trading range with neither side being able to gain a definitive advantage.

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 1:03 PM (CST) by & filed under Jim's Mailbox.

Safe Haven Trade
CIGA Eric

A lot of written commentaries elude to the safety of the U.S. dollar, and by extension U.S. longs bonds and other equity bond proxies such as utility stocks. These commentaries often portray gold as a risky investment. Please do not accept these assertions without question. Safe haven is a relative term. If the U.S. dollar, U.S. Long Bonds, and utility stocks were truly a safe during the worst financial crisis since the second Great Depression, they all would be superior performance to gold, the ultimate safe-haven currency, since onset of the third Great in 2000. This is simply not the case.

It reminds me of quote from the Matrix, 1998 where Morpheus says to Neo,

I can only show you the door. You’re the one that has to walk through it.

As long as spin remains unquestioned, in essence never walking through the door, no amount of charts and observations will reveal the trends.

Gold, London P.M. Fixed:
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Long-Term U.S. Government Bonds Total Return Index (LTGBTRI) to Gold Ratio:
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Dow Jones Utility Average (DJUA) to Gold Ratio:
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Jim,

It amazes me how the financial press can see paper as the only safe haven against other worthless paper. Aren’t they in for a surprise?

CIGA BJS

British Pound on track for breaking US$1.40 target

INTERNATIONAL. Sterling hit a new low for the year against the US Dollar of $1.49, now having fallen by more than 10% from a high of $1.68 just a few weeks ago.

The mainstream press has scrambled to explain the fall away as a consequence of the narrowing in opinion polls between Labour and the Conservatives that over the weekend showed the lead shrink to between 2% and 5% and therefore put the election into hung parliament territory (Labour has a in built 4% advantage over the Conservatives).

Sterling’s downtrend may have come as a sudden surprise to many in the press, however the trend for sterling was accurately mapped out in December 2009 (British Pound GBP Forecast 2010 Targets Drop to Below £/$1.40)- that expected sterling to weaken against a strong US Dollar to eventually target a rate of £/$1.37 on break below the trigger level of £/$1.57.

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Jim,

Hong Kong’s exchange may list Yuan bonds and derivatives.

One more step toward the internationalization of China’s currency and away from the dollar.

Best Regards,
CIGA Christopher

CIGA Christopher,

When I hear the word derivative I shiver, however if it is a first derivative it is safer.

Jim

Hong Kong’s Exchange May List Yuan Bonds, Derivatives (Update1)
By Hanny Wan

March 5 (Bloomberg) — Hong Kong Exchanges & Clearing Ltd. will offer Chinese yuan-denominated products and plans to become a primary channel for investing by Chinese nationals overseas.

Asia’s third-largest exchange is studying yuan products, particularly in fixed income, exchange-traded funds and derivatives, according to a strategy document issued with earnings yesterday. It is seeking to capture opportunities from the “increasing internationalization” of China’s currency while fending off competition from global exchanges, Chief Executive Officer Charles Li said at a press conference.

“I particularly like the part about yuan products because for foreign investors, betting on yuan appreciation is a big theme,” said Jasmine Lai, an analyst at DBS Vickers Hong Kong Ltd. “This is Hong Kong Exchanges’ niche. There’s no harm to broaden the focus to the likes of Russia, but China unavoidably should be the focus with the biggest business potential.”

Li declined to give details on what will be offered or when. He said the products must pose little risk to the nation’s foreign exchange policy, maximize the flow of yuan, and have genuine market demand.

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Posted at 1:03 AM (CST) by & filed under Trader Dan Norcini.

Dear Friends,

It is evident that “all things Europe” have been under assault by the dealers of death, aka, the hedge funds and the derivatives gang. Attacking currencies brings with it collateral damage, not the least of which is higher prices for imported goods. Weaker currencies as a general rule tend to be inflationary in their effect locally.

For a case study in what is occurring in Europe as a result of the swooning Euro in regards to commodity prices, please compare the following two charts.

Both are of the Continuous Commodity Index (CCI), the one that I prefer to use to gauge the overall trend in commodity prices because of the way in which it is structured.

Note the first chart is of the CCI in Dollar terms, which is what we are accustomed to viewing. You can see that while it has staged a significant recovery off the lows following the collapse in July 2008, it has yet to breach the final Fibonacci retracement level indicated on the chart. It is also below the median line which is a gauge that can be used to check general strength or weakness in a market.

Now look at the same chart when converted into Euro terms. Notice how much stronger this chart appears. There certainly is no indication of a battle between the forces of inflation and deflation that can be seen on this chart. It has not only bettered the last of the Fibonacci retracement levels but is knocking on the door of the median line. A push through that and there is little if anything in the way of resistance between it and the all time high.

Remember that most commodities are still priced on the global market in terms of the US Dollar, so weakness in their respective currencies leaves Europe dealing with the fallout from the Forex attack by the speculative hedge funds. Europe is facing the worst of all possible scenarios – a loss of confidence in its currencies at the same moment that investment money is pouring into the commodity sector.

While further strength in the Dollar (and thus weakness in the Euro) is resulting in hedge fund selling of commodities, the Dollar is still very suspect. Managed money flows continue into the commodity sector and as long as these flows continue, prices for commodities will continue to rise for all of Europe. That is another reason that gold is performing so strongly when priced in these various European currencies.

Click charts to enlarge in PDF format

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Posted at 2:17 PM (CST) by & filed under In The News.

My Dear Friends,

I had oral surgery this morning, and am feeling beat up. I will post more, if things improve.

If not, my comment on the Greek Bond Auction is today’s news, the rest is noise.

Respectfully,
Jim

Thought For The Day:

Morning news reported that the medium term bond offering by Greece was met with enormous demand. Greece is holding 25% back for Greek investors.

The euro immediately proceeded lower.

What the market is saying is that Greece was within days of running out of money and a small rescue by some central bank, not necessarily the ECB, offered a SMALL bailout to keep Greece funded for a very short period of time to prevent bankruptcy next week. If you issue IOUs or can’t pay your bills you are broke, period.

Now the inviting question is what central bank just made Greece a small loan against medium term bonds?

Listen to the market when such major issues are at hand, not to the fabricators that populate every government in the world without exception.

 

Jim Sinclair’s Commentary

Not one thing is reported as it is. This morning’s Greek report on the bond issue is a total set up.

Now read ShadowStats’ breakdown on the employment figures.

- Don’t Blame the Weather
"No. 283: Updated February Employment Outlook "
http://www.shadowstats.com/

Not one word we hear is truthful. Finance has been totally degraded, and the sheeple so far don’t really care.

The problem with this is that when the reckoning arrives, which it will, it will come like the Four Horsemen of the Apocalypse.

Truly MOPE is a set up for the end of financial days.

 

Jim Sinclair’s Commentary

The US is #3 on a debt to GDP basis compared to the weak EU nations.

Britain Grapples With Debt of Greek Proportions
By LANDON THOMAS Jr.
Published: March 2, 2010

LONDON — As Greece’s debt troubles batter the euro, Britain has done its utmost to stay above the fray.

Until now, that is. Suddenly, investors are asking if Britain may soon face its own sovereign debt crisis if the government fails to slash its growing budget deficits quickly enough to escape the contagious fears of financial markets.

The pound fell to $1.4954 on Tuesday, its lowest level against the dollar in nearly 10 months. The yield on 10-year government bonds, known as gilts, slid as investors fretted that Parliament would be too fragmented after a crucial election in May to whip Britain’s messy finances back into shape.

The slide in the pound followed a sharper decline on Monday after polls released over the weekend indicated that the opposition Conservatives had lost their clear lead in the election race.

Without a strong political majority to tackle Britain’s lumbering fiscal problems, investors could start to make it greatly more expensive for the government to raise funds, setting the stage for a potential double-dip recession, if not worse.

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Jim Sinclair’s Commentary

Prepare to see state and municipal debt crucified by the voices today screaming that hedge funds never forced the euro lower. Of course not, they forced the credit default derivatives market on Euro debt and were short thereof.

As they forced the CDS market higher and higher on US state debt they will be long the euro so that they can say they are not short the dollar, but instead long the euro. The US dollar will dive on the USDX.

U.S. Economy: Pending Sales of Existing Homes Unexpectedly Drop
By Courtney Schlisserman

March 4 (Bloomberg) — Fewer Americans than expected signed contracts to purchase previously owned homes in January, indicating the extension of a tax credit is doing little to lure buyers.

The index of purchase agreements, or pending home sales, dropped 7.6 percent after a revised 0.8 percent increase in December, the National Association of Realtors announced in Washington. Other reports today showed factory orders increased and first-time jobless claims declined.

The drop in contract signings adds to evidence the housing market at the center of the worst recession since the 1930s is struggling to rebound after reports last week showed unexpected declines in purchases of new and existing homes. The market may get another blow this month when the Federal Reserve ends planned purchases of mortgage-backed securities.

“When you take away all the support from the housing market, the underlying demand for housing is a lot weaker than we thought,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We clearly pushed some demand forward, and there wasn’t that much demand to pull forward anyway. The housing recovery is going to be very, very slow.”

Builder shares fell after the report, with the Standard & Poor’s Supercomposite Homebuilding Index declining 0.7 percent at 11:52 a.m. in New York. The broader S&P 500 climbed 0.1 percent to 1,119.74.

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Jim Sinclair’s Commentary

This is a maturing epidemic which will only get worse as the Achilles’ heel of the USD.

Pennsylvania state revenue collections come up short of estimate – again
By JAN MURPHY, The Patriot-News
March 02, 2010, 10:28AM

State revenue collections for February once again showed no sign of the projected rebound that economists initially led Gov. Ed Rendell’s administration officials to believe would occur in the second half of the 2009-10 fiscal year.

The state collected $1.5 billion in February — which was $102.3 million, or 6.4 percent off the revenue target for the month, according to a news release from the state Department of Revenue about the monthly revenue collections.

Collections for the 2009-10 fiscal year — which began July 1 — now at $16 billion are $476.7 million, or 2.9 percent below estimate, the revenue report stated.

This is the eighth consecutive month in the eight-month -old fiscal year when revenues came up short of estimate.

But as big as that near half-billion dollar hole may seem, it is much smaller than the near $1.3 billion gap the state faced at the same point in time in the 2008-09 fiscal year.

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Jim Sinclair’s Commentary

CIGA JB Slear says, "Books Not Bombs protests are hitting all states."

Students, professors to protest education cutbacks
March 4, 2010 9:36 a.m. EST

(CNN) — A movement born of $1 billion in budget cuts to California’s state university system has blossomed into a nationwide protest, as students and professors in 33 states will challenge administrators and state lawmakers to ante up.

Most of Thursday’s demonstrations will focus on cuts to state-funded colleges and universities, which supporters say drive up tuition, limit classes and make higher education unobtainable to many.

A blog called Student Activism said in a Twitter update that 122 events are slated from coast to coast — most on campuses, and some at state capitals.

Dissatisfaction, anger and an uncertain future have led professors and students to call for a day of action to defend education.

State funding for the California State University system was reduced by nearly $1 billion for the academic years between 2008 and 2010. Schools have responded by increasing fees, canceling classes, cutting student support programs and furloughing professors. Fees have increased 182 percent since 2002.

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"American reliance on government at all-time high"–Washington Post

–Without record levels of welfare, unemployment and other government benefits as well as tax cuts last year, the income of U.S. households would have plunged by an astonishing $723 billion — more than four times the record $167 billion drop reported last month by the Commerce Department.

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Jim Sinclair’s Commentary

What totally disgusting, revolting crap.

If I was the supporting the Greek Central Bank and bond market, as say the Fed, I would overbid the auction at various interest return levels because you can only get what is offered so there is no risk of buying more than auctioned.

Use your brain. There is NO stampede to buy Greek bonds at the present time.

Who do these spinners really believe they are fooling? Clearly it is not the FOREX markets.

Greece says 5-yr bond 3 times oversubscribed
Greece passes key test with successful 10-year bond issue, a day after new austerity cuts
Nicholas Paphitis, Associated Press Writer, On Thursday March 4, 2010, 2:15 pm EST

ATHENS, Greece (AP) — Greece raised badly needed cash with a new bond issue Thursday, passing a key test of its ability to avoid a disastrous debt default and dig out of a financial crisis that has shaken the European Union.

The five-year bond was three times oversubscribed, with euro15 billion ($20.5 billion) in offers received, a Finance Ministry statement said. The government took euro5 billion ($6.8 billion), offering a 6.3 percent yield.

The ministry said the high level of offers "shows that despite the extremely difficult circumstances, investor confidence in the Greek economy remains strong."

But it added that the steep yield — compared to benchmark German bonds of equivalent maturity — stressed the need for Greece to accelerate its reform plans, "to restore market confidence and exit the crisis."

The sale, most of which was absorbed by international institutional investors, reflects on Greece’s ability to raise money to pay off expiring bonds and avoid the risk of default. Its announcement comes a day after debt-ridden Greece detailed a whole new round of painful austerity measures, including salary cuts for civil servants, pension freezes and tax increases on cigarettes, alcohol, luxury goods and gems.

More…

 

Jim Sinclair’s Commentary

As yes, the prosperity of the killing industry is assured.

Daddy Warbucks is very happy.

Demon vs. Phantom Ray: The World’s Deadliest Drones
By Gene J. Koprowski
Updated March 03, 2010

The U.S. is investing billions of dollars in drones, the unmanned aircraft that are key to the modern military. With names like Sky Warrior and Vulture, these radar-proof spy planes can stealthily track — and secretly kill — terrorist targets. The only problem: The enemy has them too.

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Boeing

The U.S. is investing billions of dollars in drones, the unmanned aircraft that are key to the modern military. With names like Sky Warrior and Vulture, these radar-proof spy planes can stealthily track — and secretly kill — terrorist targets.

The only problem: The enemy has them, too.

No fewer than 44 other nations, from Israel to Austria, are developing their own squadrons of unmanned aerial vehicles (UAVs). The friendly skies may soon be getting crowded.

More…

 

Jim Sinclair’s Commentary

Nor will they as the Greek type financial decay is taking place so far in 39 states, not counting California.

State revenues again don’t live up to expectations
Lee Tafanelli
March 3, 2010

The news just keeps getting worse when it comes to the state’s budget situation. Last Friday we learned tax revenues for February were 27 percent lower than expected — about $71 million. This marks the third month in a row of lower than expected receipts. This news really throws the budget process under way at the Statehouse into chaos.

The current state budget — Fiscal Year 2010 that ends June 30 — is now $105 million short of what is needed to cover all budgeted expenses with just four months remaining in the fiscal year. Complicating things even further is the fact 2011 is already projecting a $416 million revenue shortfall. All total between the current year and 2011 the state is currently looking at a $ 521 million revenue shortfall, which is approximately 9 percent of the State General Fund budget.

I remain very concerned about the trend of our state tax revenues. We have already made cuts to the 2010 budget five times. And it appears our economy is not rebounding.

Legislature Approves Statewide Smoking Ban

The House voted to agree with the Senate’s smoking ban proposal, 68-54. Senate Substitute for House Bill 2221 bans smoking in private businesses, restaurants, bars, 80 percent of hotel rooms, in-home daycares, taxis and limos.

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Jim Sinclair’s Commentary

What is the difference between OTC CDS derivatives, and the Nazi Blitzkrieg of Poland?

Nothing.

Legal Briefing: Banks Suing Banks Over Credit Default Swaps
By ABIGAIL FIELD Posted 11:35 AM 03/03/10

A daily look at legal news and the business of law:

More Fallout from Exploding CDSs: Citigroup Sues Morgan Stanley

The big banks generally don’t sue each other, but that’s changing thanks to credit default swaps. Citigroup (C) is suing Morgan Stanley (MS) for $245 million, alleging Morgan failed to make good on credit default swaps held by Citi. Morgan claims that Citi engineered the underlying default that made the swaps come due, which was a breach of their CDS agreement. A big bank buying credit default swaps when it was involved in making the underlying debt obligation particularly risky … hmmm … where have we heard that before? Both sides have requested a ruling on the matter from District Judge Shira Scheindlin in New York.

Apple Sues Google’s Main Cell Phone Partner Over Patents

When Google’s (GOOG) Android cell phone operating system hit the market, it was seen as a potentially major rival to Apple’s (AAPL) iPhone. Apple is now trying to end the competition with a lawsuit charging that Android phones made by HTC Corp., including the Nexus One, which Google itself sells, infringe on 20 of Apple’s patents. Although the suit seeks an injunction that would shut down the sale of Android phones, that result seems unlikely. What’s more probable is a countersuit by HTC and/or Google, ultimately followed by a settlement.

More…

Posted at 1:54 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

News out of Japan concerning comments by Prime Minister Hatoyama that the nation’s fiscal condition was “quite severe” was enough to send the Yen reeling on the crosses earlier in the day. It had been grinding higher since the middle of last month and was at a three month high. One wonders whether or not that was intended to deliberately knock it down as it is no secret that Japan does not like a strong Yen.

Fears began resurfacing in regards to Greece in today’s session after a bit of a relief rally yesterday. That brought on a return of the “Sell Europe” trade. Down went the Euro, the British Pound, and the Swiss Franc once again and up went the US Dollar as did the bonds with a return to “safe haven” trades in that pit.

The war of words between Germany and Greece continues with a German Parliament member telling Greece to go and sell some of the uninhabited islands off its coasts to raise money. Anyone wanna buy some beachfront with a view?

Thus far gold is performing fairly well considering the strength in the Dollar as it attempts to bounce off the $1,130 level. I would like to see it hold this region to keep bullish momentum alive but it could drop as low as $1,100 and still find favor with the bulls. Only a closing breach below the $1,090 level would cede the short term advantage back to the bears.

The HUI has moved lower and is retesting its breakout point near 419 -420. It will need to hold there to allow the bulls to take the mining shares higher.

Copper is having difficulty whenever it approaches the $3.50 level but its chart still does not look like one signifying deflation ahead. It would need to break down below $3.15 for the deflation camp to come up with anything to talk about.

It really is amazing watching these commodity markets and observing the price action across so many of them in relation to the US Dollar. You can set your watch by these hedge fund algorithms. With few exceptions, the entire sector is seeing selling pressure today for no other reason than the fact that the Dollar is higher. We are no longer trading the fundamentals of supply and demand in any of these markets but rather the hedge fund activity. Nothing else seems to matter any more. If the funds are buying, everything goes up as long as the Dollar is lower. If the Dollar is higher, everything goes down. That is why whenever we see gold bucking that kind of selling whenever the Dollar is higher or see it moving well off its lows in the face of a stronger Dollar, it is telling.

The S&P 500 is struggling near the 1125 level but has not broken down technically. It is going to have to clear that level to give equity bulls a shot at the 1150 level. A break below 1092- 1090 and the bears will begin growling.

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 2:40 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

The US economy is driven by the levels of consumer activity.

For those that see a rosy economic future, explain this.

More consumers file for bankruptcy protection
By Christine Dugas, USA TODAY

The economic recovery effort has not slowed consumer bankruptcy filings. They surged 14% in February compared with a year earlier, according to the American Bankruptcy Institute.

The 111,693 cases filed last month also represented a 9% increase from January, the report said.

"The debt-stress overhang from years of consumer spending has a more acute impact now because of troubling economic times," says Samuel Gerdano, American Bankruptcy Institute executive director.

And that financial distress is driving more Americans to file for Chapter 7 bankruptcy, which — if approved — allows a court to discharge most unsecured consumer debt, including credit card bills.

When a stricter bankruptcy law took effect in 2005, a major goal was to require more families to rely on Chapter 13 bankruptcy, which requires filers with regular income to repay debts in full, or in part, over several years.

More…

Jim Sinclair’s Commentary

Jobs are the key to consumer activity.

No jobs means no consumers

IBM layoffs blamed on offshoring
As many as 2,000 workers may be hit in latest round of cuts
By Patrick Thibodeau
March 2, 2010 01:36 PM ET

Computerworld – After shrinking its U.S. workforce by as many as 10,000 employees last year, IBM this week may be on its way to cutting another 2,000 workers.

IBM isn’t commenting on its latest round of cuts and information about it comes from the Alliance@IBM/CWA Local 1701, which gathers its data directly from IBM employees. The Alliance, which has blamed offshoring for many of the layoffs, has been trying to win bargaining rights for employees.

"IBM is clearly offshoring things where they can," said one IBM employee who received his notice yesterday and spoke on the condition of anonymity because he didn’t want to jeopardize his severance. A 10-year veteran and UNIX administrator, this employee said his customer support team once had 15 U.S.-based workers. That staff was reduced over time to just three workers in the U.S., with other members of the customer support team now in Brazil, Argentina and India.

The employee said he was not given a good reason for his layoff. "Higher ups made a decision that a certain percentage had to be cut – it was not performance-based at all," he said. Although the employee said he’s uncertain about the job market, "my sense is that it is not horrendous [but] I’ll have to assume that I’ll have to take a cut in pay."

As of last October, IBM employed 105,000 workers in the U.S., compared to 115,000 in 2008. In 2007, IBM had 121,000 U.S. employees. It employs about 400,000 globally.

More…

Jim Sinclair’s Commentary

The Credit Default Swaps will attack state after state until the US dollar rolls under the previous lows as a result.

What the CDS gang takes no note of is what they are doing to the heartbeat of America or any of their other victims.

Up to 5,200 LA schools workers could face layoffs
By JACOB ADELMAN | Posted: March 2, 2010 5:25

The Los Angeles Unified School District’s board voted Tuesday to send notices of possible layoffs to nearly 5,200 teachers and other workers while urging union leaders to negotiate concessions that could make some of the cuts unnecessary.

The Board of Education members who spoke at the hearing stressed they were unanimously authorizing the notices to meet a state deadline and hoped many of the cuts to the nation’s second-largest school district’s work force could be avoided.

The state’s education code requires school districts to notify teachers by March 15 if they may not have jobs the following school year.

"What we’re voting on today can be reversed, can be mitigated, and we must do that," board member Richard Vladovic said.

The school board laid off more that 2,000 workers last year as part of a series of measures to address a persistent budget gap, which also included increasing class sizes and eliminating music and arts programs.

More…

Jim Sinclair’s Commentary

State and city bankruptcy is nothing to take lightly.

Greece is nothing compared to California. California is only the first. Many more state will be filing.

Municipalities will be filing the terrifying Chapter 9.

15,000 S.F. workers face layoffs, shorter weeks
Heather Knight, Chronicle Staff Writer
Wednesday, March 3, 2010

More than 15,000 San Francisco city workers across all departments will receive layoff notices Friday, and most of them will have the option of being rehired to work a shorter week, Mayor Gavin Newsom said Tuesday.

Newsom’s controversial plan to help reduce the city’s $522 million budget deficit for the 2010-11 fiscal year would shift the majority of the city’s 26,000 workers from a 40-hour week to 37 1/2 hours, cutting their paychecks by 6.25 percent.

The plan is expected to save $100 million – half in the city’s general operating fund and half in money-generating departments including the port and airport – but is being decried by unions and some supervisors as a slap at the rank and file.

They also pointed to the mayor’s inability to promise that the move would spare future layoffs. Newsom said not all workers who receive layoff notices Friday will be rehired but refused to specify how many that may be.

The mayor insisted, though, that it’s a smart way to spare several thousand layoffs and ensure that workers retain jobs as the city faces its biggest budget deficit. The move to a shortened workweek would not affect employees’ health benefits, vacation or sick time.

More…

Jim Sinclair’s Commentary

We as well as the entire Western World are falling off a cliff.

The CDS market is already decimating state debt.

Indiana puts 17th notch in revenue shortfall belt
By Eric Bradner
Posted March 2, 2010 at 11:45 p.m.

INDIANAPOLIS — Indiana now has had 17 consecutive months of bad fiscal news.

The latest revenue report on Tuesday showed the state took in $85.5 million less in taxes in February than was predicted less than three months ago.

That puts the state $869 million below what lawmakers expected when they passed the budget for the fiscal period beginning in July.

Gov. Mitch Daniels did not immediately order any budget cuts, but since it’s been 17 months since actual revenues met projections, he said further spending reductions might be necessary if revenues continue to sag.

"We’ll just have to keep looking at it. There’s not a state in the union that’s done as much as we have, and we’re not out of tricks yet," Daniels said.

Daniels in December ordered a 3.5 percent cut in K-12 education funding. The move came after he slashed state agencies’ budgets, reduced or eliminated funding for a series of programs and cut $150 million in higher education spending.

More…

Jim Sinclair’s Commentary

New York State’s reduction of their revenue estimate is a fairy tale. It is going much lower than this figure would indicate.

NY state cuts revenue estimate by $850 million
Tue Mar 2, 5:49 pm ET

NEW YORK (Reuters) – New York Governor David Paterson and the state legislature have agreed to reduce their revenue forecast by $850 million for the next 13 months, a state report said on Tuesday.

The Democratic governor in February cut $750 million from his revenue forecast for his proposed $136 billion budget for fiscal 2011, which starts on April 1.

"The national economy, and to a greater extent, the New York economy, will experience a weak recovery which will translate into slow receipts growth," said the report on the state economic and revenue consensus estimate.

Paterson, whose ability to lead has been called into question by a probe into whether he and state troopers tried to quash a domestic violence complaint against an aide, met on Tuesday with legislative leaders to discuss the budget.

On Monday, Paterson forecast that the deficit in the new fiscal year would grow to around $9 billion from his previous estimate of $8.2 billion because a number of payments will not arrive on time, including $300 million from a slot machine vendor for the Aqueduct Racetrack.

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Jim Sinclair’s Commentary

Remember the BS we were subjected to in December? How people can believe the F-TV and Wall Street Superstar crap beats me.

Economists: Another Financial Crisis on the Way
Nonpartisan Group Led by Nobel Winner Calls for Stronger Financial Reforms
By MATTHEW JAFFE
March 2, 2010

Even as many Americans still struggle to recover from the country’s worst economic downturn since the Great Depression, another crisis – one that will be even worse than the current one – is looming, according to a new report from a group of leading economists, financiers, and former federal regulators.

In the report, the panel, that includes Rob Johnson of the United Nations Commission of Experts on Finance and bailout watchdog Elizabeth Warren, warns that financial regulatory reform measures proposed by the Obama administration and Congress must be beefed up to prevent banks from continuing to engage in high risk investing that precipitated the near collapse of the U.S. economy in 2008.

The report warns that the country is now immersed in a "doomsday cycle" wherein banks use borrowed money to take massive risks in an attempt to pay big dividends to shareholders and big bonuses to management – and when the risks go wrong, the banks receive taxpayer bailouts from the government.

"Risk-taking at banks," the report cautions, "will soon be larger than ever."

Without more stringent reforms, "another crisis – a bigger crisis that weakens both our financial sector and our larger economy – is more than predictable, it is inevitable," Johnson says in the report, commissioned by the nonpartisan Roosevelt Institute.

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Jim Sinclair’s Commentary

Wall Street owns Washington so initiatives like this possess little hope for cleaning up the place.

They have to keep records for tax purposes so what is this anyway.

U.S. Said to Tell Hedge Funds to Save Euro Records (Update1)
March 03, 2010, 3:52 AM EST
By Katherine Burton and David Scheer

March 3 (Bloomberg) — The U.S. is asking hedge funds not to destroy trading records on euro bets, according to a person with knowledge of the requests, as Europe and the U.S. step up scrutiny of the funds’ role in the Greek debt crisis.

The Department of Justice sent requests to save the records to at least some of the hedge funds whose executives attended a dinner hosted by New York-based research and brokerage firm Monness, Crespi, Hardt & Co. on Feb. 8, said the person, who declined to be identified because the information is private.

“It is clear in the current environment, and likely for a long time going forward, any entity that profits from another’s misfortune, in this case hedge funds versus Greece and the euro zone, risks being the target of public backlash, or worse, government retaliation,” said Kirby Daley, a senior strategist in Hong Kong with Newedge Group’s prime brokerage business.

Aaron Cowen, an executive at SAC Capital Advisors LP, David Einhorn, head of Greenlight Capital LLC, and Don Morgan, who runs Brigade Capital Management LLC, attended the dinner, as did a representative from Soros Fund Management LLC, the Wall Street Journal said Feb. 25.

Greece’s Woes

Spokespeople for the hedge funds declined to comment or didn’t return calls seeking a comment. Neil Crespi, president of Monness Crespi, couldn’t be reached for comment. Gina Talamona, a Department of Justice spokeswoman, declined to comment. The requests were reported earlier yesterday by CNBC.

More…

Jim Sinclair’s Commentary

If the Fed fails to Expand QE to infinity then the Fed will be history.

Obama-fying The Fed?
Brian Wingfield, 03.02.10, 07:07 PM EST

Congress and K Street are the real threats to reshape the central bank, not the president.

WASHINGTON — With big changes afoot at the Federal Reserve, the nation’s capital is suddenly abuzz with chatter that President Barack Obama will have significant influence over the central bank’s future.

Not only is Congress considering shaking up the Fed’s regulatory duties, Obama will have the opportunity to appoint three new members of the bank’s Board of Governors, due to two vacancies and the recent announcement that Fed Vice Chairman Donald Kohn will step down in June.

But talk about the administration’s influence is overblown, says former Dallas Fed President (and Forbes.com contributor) Bob McTeer. "It’s been my experience that once somebody comes to the Board of Governors, they sort of become technocrats," he says, adding that most decisions by the board are made after much discussion by the governors and briefings by well-informed Fed staff. "I think the fact that Obama will be making the appointments will not make a lot of difference."

In fact, more influence over the central bank is likely to lie with lobbyists and lawmakers. Members of the Senate Banking Committee have been considering a deal that would establish a consumer protection division–headed by a political appointee–within the Federal Reserve. Such an agreement would keep financial products and banks under the same regulator, a position supported by the Financial Services Roundtable, an industry group whose members include heavyweights like Bank of America, Citigroup and Nationwide.

But K Street is also eyeing the compromise with caution, for a variety of reasons. Ryan McKee, senior director of the U.S. Chamber of Commerce’s Center for Capital Markets, says the chamber is concerned about overlapping authority with other regulators, no matter which agency houses the consumer protection agency. John Taylor, president and chief executive of the National Community Reinvestment Coalition, calls the plan a "waste of taxpayers’ money" since the Fed has a track record of laxity in enforcing its existing authority.

More…

Jim Sinclair’s Commentary

The US economy is consumer based.

Consumer confidence still struggling.
ABC’s Consumer Comfort Index came in at -49, just slightly better than last week’s -50. However, the individual components still aren’t pretty: Like last week, just 8% of Americans rate the national economy positively, and only 24% think it’s a good time to buy things. Those rating personal finances positively inched up to 44% from 43%

 

Jim Sinclair’s Commentary

CIT is the factor to middle American and middle/lower tier businesses.

If CIT lacks the means to make the factor then middle America is thoroughly screwed.

They do not, yet the equity guys are bulls forgetting the FASB gift of mark up.

CIT Emerges From Bankruptcy: Where to Next?
March 02, 2010

CIT Group (CIT) emerged out of bankruptcy yesterday. There is no balance sheet out yet. Heck, people don’t even know what the share count is – for that you need to read the bankruptcy filing 8-K.

Total share count = 200 mn

Share Price = $28

WSJ is saying that $11bn of debt has been wiped out. That is on top of $5bn of pref and equity interests that have been wiped out. So, in total $16bn has been wiped out on a book of $64bn.

The books have to be restated at fair value. Even if there is a 15% write off of the book so that $10bn of loans are written down, there should be tangible book value left. And after that, because there wont be any more provisions to take, CIT will report eye-popping earning numbers. This is like the Wells Fargo (WFC) – Wachovia (WB) situation from a year

More…

 

Jim Sinclair’s Commentary

Today we are going to bail out Greece. Let’s see what tomorrow brings.

IMF Welcomes Greece’s ‘Very Strong’ Fiscal Package (Update1)
March 03, 2010, 12:59 PM EST
By Sandrine Rastello

March 3 (Bloomberg) — The International Monetary Fund praised the Greek government’s 4.8 billion euros ($6.6 billion) of additional deficit cuts announced today and said it stands ready to share “technical expertise.”

“The authorities have put together a very strong fiscal package for 2010,” IMF spokeswoman Caroline Atkinson said in an e-mailed statement today. “The implementation of the fiscal program will be a crucial step forward in a multi-year process.”

Greek Premier George Papandreou is risking a backlash at home to meet European Union demands for more deficit cuts before allies would come to Greece’s aid. Greek bonds rose to their highest in three weeks on the measures, including higher fuel, tobacco and sales taxes.

The IMF, which sent a staff member to Athens last week at the request of European and Greek officials, stands ready to “support the implementation of the authorities’ plans by sharing our technical expertise in these matters,” Atkinson said.

IMF Managing Director Dominique Strauss-Kahn has expressed confidence the EU would resolve Greece’s fiscal problems without outside aid and reiterated that the IMF can provide financial help if it’s requested.

More…

Jim Sinclair’s Commentary

What a novel idea. A CEO should have his own money on the line, but realistically how many do currently or will ever?

How many good people were there in Sodom and Gomorrah?

Does the speaker have his own money on the line? It does not count if you got your stock from options. That is not money on the line. Money on the line is shares bought at or above market prices.

Buffett vents on financial fat cats
By Colin Barr, senior writerMarch 1, 2010: 11:55 AM ET

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NEW YORK (Fortune) — Warren Buffett has an elegant solution for the thorny problem of too-big-to-fail banks: Put the bankers’ bank accounts on the line.

Buffett, the chairman of Berkshire Hathaway (BRKA, Fortune 500), lashed out at the damage wrought by overpaid, unaccountable finance-industry bigwigs in his annual letter to Berkshire shareholders, released Saturday.

Buffett has been criticizing overreaching corporate managers and complaisant directors for decades. But the question of how to motivate good corporate behavior has taken on new weight as Washington debates reining in the financial giants whose missteps brought the economy to its knees two years ago.

The Obama administration last month proposed separating banks’ proprietary trading activities from their federally subsidized deposit-gathering and lending ones. Other proposed rules would increase the amount of capital banks hold against losses and how much cash they carry to deal with a surge of withdrawals.

But Buffett said there’s a simpler way to cap risk-taking: Forcing lavishly compensated CEOs to take responsibility for assessing the risks at their firms — and putting their own wealth at stake, to boot.

More…

Jim Sinclair’s Commentary

Today we are going to bail out Greece. Let’s see what tomorrow brings.

IMF Welcomes Greece’s ‘Very Strong’ Fiscal Package (Update1)
March 03, 2010, 12:59 PM EST
By Sandrine Rastello

March 3 (Bloomberg) — The International Monetary Fund praised the Greek government’s 4.8 billion euros ($6.6 billion) of additional deficit cuts announced today and said it stands ready to share “technical expertise.”

“The authorities have put together a very strong fiscal package for 2010,” IMF spokeswoman Caroline Atkinson said in an e-mailed statement today. “The implementation of the fiscal program will be a crucial step forward in a multi-year process.”

Greek Premier George Papandreou is risking a backlash at home to meet European Union demands for more deficit cuts before allies would come to Greece’s aid. Greek bonds rose to their highest in three weeks on the measures, including higher fuel, tobacco and sales taxes.

The IMF, which sent a staff member to Athens last week at the request of European and Greek officials, stands ready to “support the implementation of the authorities’ plans by sharing our technical expertise in these matters,” Atkinson said.

IMF Managing Director Dominique Strauss-Kahn has expressed confidence the EU would resolve Greece’s fiscal problems without outside aid and reiterated that the IMF can provide financial help if it’s requested.

More…

Jim Sinclair’s Commentary

What a novel idea. A CEO should have his own money on the line, but realistically how many do currently or will ever?

How many good people were there in Sodom and Gomorrah?

Does the speaker have his own money on the line? It does not count if you got your stock from options. That is not money on the line. Money on the line is shares bought at or above market prices.

Buffett vents on financial fat cats
By Colin Barr, senior writerMarch 1, 2010: 11:55 AM ET

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NEW YORK (Fortune) — Warren Buffett has an elegant solution for the thorny problem of too-big-to-fail banks: Put the bankers’ bank accounts on the line.

Buffett, the chairman of Berkshire Hathaway (BRKA, Fortune 500), lashed out at the damage wrought by overpaid, unaccountable finance-industry bigwigs in his annual letter to Berkshire shareholders, released Saturday.

Buffett has been criticizing overreaching corporate managers and complaisant directors for decades. But the question of how to motivate good corporate behavior has taken on new weight as Washington debates reining in the financial giants whose missteps brought the economy to its knees two years ago.

The Obama administration last month proposed separating banks’ proprietary trading activities from their federally subsidized deposit-gathering and lending ones. Other proposed rules would increase the amount of capital banks hold against losses and how much cash they carry to deal with a surge of withdrawals.

But Buffett said there’s a simpler way to cap risk-taking: Forcing lavishly compensated CEOs to take responsibility for assessing the risks at their firms — and putting their own wealth at stake, to boot.

More…

 

Jim Sinclair’s Commentary

The FDIC is to enter the OTC derivative business by securitizing acquired assets from bankruptcy. This is an interesting solution to a problem brought on by securitizing assets.

"FDIC sources confirmed to HousingWire in January a move to consider securitizing assets seized from failed banks and depository institutions. The Securities Industry and Financial Markets Association (SIFMA) called it “an attempt to restart the stalled securitization markets.”"

FDIC Guarantees $1.8bn of Structured Financing on Failed Bank Assets
by DIANA GOLOBAY
Wednesday, March 3rd, 2010, 2:11 pm

Guidance is out on a forthcoming issue of structured notes from the Federal Deposit Insurance Corp. (FDIC).

The issue, which is expected to be backed by private-label mortgage-backed securities (MBS) acquired through depository bank failure receiverships, is expected to launch and price this week.

One class of notes worth $1.33bn is said to be at 65bps over Libor, while the class of $480m of notes range at swaps plus 90 to 95bps, according to price guidance provided to HousingWire.

The issue bears a 100% FDIC guarantee, meaning it bears the full faith and credit of the US.

Sources confirm that Barclays Capital is lead arranger on the deal though the official release of information remains restricted.

More…

Jim Sinclair’s Commentary

The FDIC is going to cure the problem below by securitizing seized assets and selling them to the public. We are truly lost!

An Easily Understandable Explanation of the Derivatives Markets

Heidi is the proprietor of a bar in Detroit. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with new marketing plan that allows her customers to drink now, but pay later.

She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Heidi’s "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Heidi’s bar. Soon she has the largest sales volume for any bar in Detroit.

By providing her customers’ freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi’s gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi’s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics  as collateral.

At the bank’s corporate headquarters, expert traders transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don’t really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics.

Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi’s bar. He so informs Heidi.

Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since, Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Heidi’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion dollar no-strings attached cash infusion from the Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers.

Now, do you understand?

Posted at 2:24 PM (CST) by & filed under Jim's Mailbox.

Jim Sinclair’s Commentary

Major MOPE reviewed by CIGA Eric.

Planned layoffs drop to lowest level since 2006
CIGA Eric

February’s total of 42,090 planned layoffs was 41% below January’s 71,482 and 77% lower than the 186,350 job cuts tracked in February 2009, at the depth of the recession. It was the lowest monthly total since July 2006.

At times, obvious good news must be view with skepticism. Today’s announced layoff by Challenger, Grey and Christmas showed a year-over-year contraction of -150%. Since the inception of the time series, large declines in excess of -125% (1994, 2000, 2002, and 2006) have marked intermediate bottoms from which announced layoffs have expanded. As I have said many times before, it is often unwise to assume that this time will be different.

The red spot shadow reflects a probability window based on the previous advances.

Challenger, Grey, and Christmas Announced Layoffs (ALO) And YOY Change:
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Source: marketwatch.com

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Jim Sinclair’s Commentary

You know that this was known in December yet the horns blew for prosperity.

Manufacturing slows in February
CIGA Eric

Manufacturing activity expanded in February for the seventh straight month, but at a slower pace, a purchasing managers’ group said Monday.

The Tempe, Ariz.-based Institute for Supply Management’s U.S. manufacturing index slipped to 56.5 from 58.4 in January.

The below chart illustrates the cycles of liquidity-driven growth. The comparison of the 70′s with today does not suggest a similar economic setup. The ISM data limited data history only allows for near term cycle comparisons.

ISM Prices Paid Index (PP) to National Purchasing Manager’s Index (PMI) Ratio:
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Source: money.cnn.com

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Personal income edges higher
CIGA Eric

Personal income edged up slightly in January, and spending by individuals rose for a fourth straight month, according to government data released Monday.

What the headline fails to reveal is the growing instability between personal consumption and income. Personal consumption to income has risen to a record high of 84.8% in 2010 despite rising unemployment and income stagnation. This is a far cry from 74% recorded in 1981. The most recent ratio has exceeded the old record high of 84.7% posted only five years ago. Either Americans are truly reckless consumers, or they, struggling to keep their heads above water in troubled economic times, find themselves spending an increasing amount of their personal income on basic, survival consumption. I tend to view the rising ratio more as the latter. How much of personal income can be devoted to consumption – 85%, 90%, how about 100%? The higher the ratio goes, the more unsustainable it becomes. Soon, no amount of entitlements will delay the inevitable – a serious drop in consumption relative to income. This reality reveals the seriousness of the problems (both economic and social) facing the domestic and global economy.

Personal Consumption As A % of Personal Income or "Real Funding Pool":
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Source: money.cnn.com

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Money – The Subject Theory of Value
CIGA Eric

If you want to understand why gold is rising despite few signs of price inflation, it boils down to the understanding of how money is valued. The quantity theory of money, believed by monetarists, suggests that too much money chasing too few goods, will produce inflation in time.

The Fed is printing money like a drunken sailor, but the signs of hyperinflation are nowhere to be seen. Yet, despite this, the price of gold continues to climb. Why? People, on the margin, are becoming increasing skeptical of dollar ability to preserve value over time. Gold has not gone parabolic, often result of hyperinflation, because people have yet to believe en mass that the dollar "cooked" or worthless. There lies the basic description of the subjective theory of value of money as presented by the Austrian School of Economics.

Money is a game of perception and confidence. This is the main reason why thing can look so normal, right before the wall of confidence come tumbling down and all hell breaks loose. Martin Armstrong alludes to this rapid progression in his commentary How all systems can collapse overnight.

Suggested Reading: kitco.com
Suggested Reading: How all systems can collapse overnight

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