Posted at 6:22 PM (CST) by & filed under General Editorial.

CIT Fallout:

MOPE (management of perspective economics) is flying in the form that many participants in lending short term, factoring, etc are prepared to step in and fill the gap for small businesses that the collapse of CIT will cause.

F-TV has more talking heads talking about filling in the CIT gap than Money Bunnies to interview them and carefully guide their words.

Do you really believe that any of these eager gap filling business people have the funds available for lower credit small businesses or factoring an inventory of sneakers?

Do you really believe, as F-TV would have you believe, the CIT gap fillers are the Bank Espiritu Mother Theresa?

1. The CIT gap fillers will not fill the gap.
2. The cost of funds the CIT gap fillers make available will make these Beelzebub lenders look, cost of money-wise, like the Mafia money on the street or any Bankster’s idea of Christmas.

The bailed out Banksters and Wall Street gang are dreaming of lemon drop candy sticks and a flat yield curve.

Posted at 6:18 PM (CST) by & filed under In The News.

Dear CIGAs,

Here is a video on Dark Pools that will help you better understand them.

Jim Sinclair’s Commentary

The failure of CIT will impact the "Real Economy" with No bailout for the Main Street victims.

This is one hell of a way to produce a level yield curve when you have cheap government money, and take over all the businesses by the major Banksters with "No mercy for the Real Economy." This is profitable business to steal.

CIT’s imminent failure is already having an effect on some businesses. This does not bode well for the "real economy!"

CIGA Marc says, "Moore Handley was founded in 1882 and is the second largest independent distributor of hardware in the United States (non-cooperative)."

Alabama Hardware Distributor Blames CIT Woes for Its Bankruptcy
By Steven Church and William Rochelle

July 18 (Bloomberg) — A hardware distributor in Alabama became the first company to blame the troubles of commercial lender CIT Group Inc. for its bankruptcy yesterday when it filed for protection from creditors.

Moore-Handley Inc., which supplies tools and other items to hardware stores and home centers, said in court papers that it was forced into Chapter 11 because it had difficulty getting cash from CIT, its lender.

The company has tried to negotiate with CIT, though “the federal government’s recent decision not to support CIT’s reorganization has thrown CIT into disarray and casts substantial doubt on CIT’s ability to continue to fund the Debtor’s working capital requirements,” Moore-Handley said in documents filed in U.S. Bankruptcy Court in Birmingham, Alabama.

CIT has reported $3 billion of losses in the past eight quarters and has been in talks with lenders about funding its own possible bankruptcy, according to people with knowledge of the matter. CIT may need as much as $6 billion to avoid filing for bankruptcy protection after the U.S. wouldn’t give the firm a second bailout, according to CreditSights Inc.

Curtis Ritter, CIT’s director of media relations, didn’t immediately respond to a request for comment.

The company received $2.33 billion in funds from the U.S. Treasury in December and hasn’t been given access to the Federal Deposit Insurance Corp.’s debt-guarantee program.

‘Crisis’ for Retailers

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Jim Sinclair’s Commentary

A lesson in high velocity trading, or "Churning for Profit, Manipulation and Obscuration."

http://watch.bnn.ca/the-close/july-2009/the-close-july-15-2009/#clip193943

Jim Sinclair’s Commentary

The damage talking heads do is not limited to Financial TV. What they do not know could fill a universe. The damage they do is global.

Understanding the jihadis, by way of Sun Tzu
Sebastian Gorka, National Post Published: Friday, July 17, 2009

There are only two strategists in the eternal pantheon of great thinkers: The Prussian general Carl von Clausewitz and the mysterious Chinese military man Sun Tzu. The first warned us that the most important decision a leader can make before enjoining battle is to understand what kind of war he is embarking upon. Sun Tzu advised us that if we wish to guarantee victory, we must know two things: who we are and who the enemy is.

In regard to the Taliban and al-Qaeda, the latter question is mudded by the scores of talking heads and self-appointed military experts who have swarmed the North American media since 9/11. Far too many bandy about the terms Taliban and al-Qaeda with abandon, never taking a moment to define what they mean or to discuss the relevant links involved.

Words matter, even — or especially — when bullets are flying. And the question of who the enemy is has become all the more important since the arrival of a new U. S. administration, and especially after President Barack Obama’s Cairo speech. Whatever the strategy that replaces George W. Bush’s global war on terrorism, its architects must first define the nature of the enemy and the nature of the conflict we are in.

The Taliban are not al-Qaeda and al-Qaeda is not the Taliban. Yes, the Taliban gave safe-haven to Osama bin Laden and his organization after he was expelled from Sudan in the late-1990s. Yes, members of al-Qaeda and even bin Laden’s own family have intermarried within Taliban power-groups, including the so-called Quetta Shura. But the Taliban must be understood as a heterogeneous group of warlords with variegated pasts and disparate interests. Some are former members of the governing regime that was dislodged by U. S. special forces and the CIA after 9/11. Others are primarily narcotraffickers, while some are tribally defined and established masters of regions which have proved impossible to domesticate for centuries.

The only meaningful way in which the collective noun "Taliban" –and this is how the word should be understood –must be used, is as a descriptor for those individuals and forces which either subscribe to the fundamentalist totalitarianism that characterized Afghanistan before October 2001, or who exploit this ideology to protect vested interests since they would have too much to lose otherwise and because they have no interest in a vision of the Afghan future tied to the United States.

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It’s Not An Option
By INVESTOR’S BUSINESS DAILY | Posted Wednesday, July 15, 2009 4:20 PM PT

Congress: It didn’t take long to run into an "uh-oh" moment when reading the House’s "health care for all Americans" bill. Right there on Page 16 is a provision making individual private medical insurance illegal.

When we first saw the paragraph Tuesday, just after the 1,018-page document was released, we thought we surely must be misreading it. So we sought help from the House Ways and Means Committee.

It turns out we were right: The provision would indeed outlaw individual private coverage. Under the Orwellian header of "Protecting The Choice To Keep Current Coverage," the "Limitation On New Enrollment" section of the bill clearly states:

"Except as provided in this paragraph, the individual health insurance issuer offering such coverage does not enroll any individual in such coverage if the first effective date of coverage is on or after the first day" of the year the legislation becomes law.

So we can all keep our coverage, just as promised — with, of course, exceptions: Those who currently have private individual coverage won’t be able to change it. Nor will those who leave a company to work for themselves be free to buy individual plans from private carriers.

From the beginning, opponents of the public option plan have warned that if the government gets into the business of offering subsidized health insurance coverage, the private insurance market will wither. Drawn by a public option that will be 30% to 40% cheaper than their current premiums because taxpayers will be funding it, employers will gladly scrap their private plans and go with Washington’s coverage.

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Posted at 2:05 PM (CST) by & filed under In The News.

Dear CIGAs,

The main characteristic of a sociopathic corporate culture is a total disregard for the rights of others. Sociopaths are also unable to conform to what society defines as a normal personality. Antisocial tendencies are a big part of the sociopath’s personality. Sociopaths feels most comfortable when the circumstances surrounding them and their associates share the same attitudes. They are distrustful and disdain those who do not agree with their reality and will turn on each other at the slightest provocation.

We Don’t Care. We Don’t Have To Care. We’re Goldman Sachs.

Goldman Sachs has openly, blatantly gone back to business as usual, knowing they will be bailed out by taxpayers if their high rolling gambles don’t work, and they don’t care who knows about it.

The reason they can be so breathtakingly arrogant, so stunningly cavalier about not giving a damn about things that any other company’s PR and government relations department would advise them against, is that they know they have the power to do anything they want to do. The Obama White House needs to take Goldman Sachs to the woodshed rhetorically, and they should have the Justice Department investigating them for anti-trust violations and all manner of stock manipulation. It is time to start squeezing the management at Goldman, and making them nervous about being broken up into pieces that are not too big to fail.

Here’s (with brief intro) Matt Taibbi, Rob Johnson, and myself taking about Goldman Sachs on what is rapidly becoming my favorite media program for discussing economic issues, GRITtv:

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Jim Sinclair’s Commentary

The war between the present Administration and the Federal Reserve has to do with the level of QE or simply how many bonds the Fed will purchase from the US Treasury.

Bernanke either vigorously steps up buying of US Treasuries or the next and new Chairman will.

Bernanke either ratchets up buying of US Treasury paper by the Fed "to all and every" not otherwise subscribed to at present interest levels or the Fed will be made a toothless regulator by act of Congress.

Remember, Bush gave birth to Bernanke so therefore Bernanke becomes a present Administration team player or he is not a player at all.

Forget this independent Fed crap. It does not float in a MOPE world.

Will Bernanke make case for more asset purchases?
Fed chief may offer an expansion plan rather than an exit strategy
Jul 17, 2009, 6:10 p.m. EST
By Greg Robb, MarketWatch

WASHINGTON (MarketWatch) — One key question ahead of Federal Reserve chairman Ben Bernanke’s testimony to Congress next week is whether he has the guts to makes the case for more, not fewer, purchases.

Although there has been much talk recently has been about an exit strategy, some economists think an expansion plan may be the order of the day.

Private and public economic forecasts are converging on the view that unemployment will remain at high levels for years.

In the words of Nouriel Roubini, chairman of RGE Monitor and professor at New York University’s Stern School of Business, the U.S. appears headed for a "shallow, below-par and below-trend recovery where growth will average about 1% in the next couple of years when potential is probably closer to 2.75%."

The Fed’s central forecast now sees the unemployment rate rising as high as 10.1% in 2009. It projects it will remain above 9.5% in 2010 and only falling to 8.6% in 2011.

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Jim Sinclair’s Commentary

You have no idea how critical this is.

This writer understates it badly. Does the central planning committee want to launch the Lehman Brother syndrome into the real economy?

If CIT goes MOPE concerning the fat cat’s purchasing of some of CIT’s divisions this will not stop the avalanche of unemployment inherent is this poor decision.

Looking back from a 43% approval rating for the present administration will show the walk away from CIT as the catalyst. Nothing will repair this error for the present administration. This is the present Administration’s Battle at Waterloo and Obama is not Wellington.

Saving the fat cats and dumping the average guy (CIT failure) will be remembered for a millennium.

Armstrong is dead right that this is a one term Administration with the rise of a third party to victory.

Change the title below taking the word "could" out and put "WILL" in its place.

CIT failure could unleash slew of bankruptcies
Andrew S. Ross
Friday, July 17, 2009

Move along. Nothing to see here. That appears to be the view of the Obama administration as it allows CIT Group Inc. to desperately look for other financing, or slide quietly into bankruptcy, possibly as early as today.

This is not Lehman Bros. Part 2, and besides, another bailout is a political nonstarter, go the assumptions. The damage, even to those businesses that rely on CIT for regular infusions of cash, will manage, according to much of the financial punditocracy. And isn’t the administration planning to pump billions more dollars into small-business loans anyway?

Lloyd Chapman, president of the Petaluma-basedAmerican Small Business League, is not so cheery. "I fear an avalanche of bankruptcies," which may hit California hard because of the concentration of retail and import clothing businesses in the state tied to CIT, Chapman said. As to the supposed ease of replacement, many of the loans are long-term credit lines given to business owners "that had been turned down repeatedly by other lenders." The Obama administration, he added, is going to have come up with a "much bigger pot of money" than is currently on offer to replace what businesses will lose with CIT’s disappearance.

Noting that Goldman Sachs Group Inc., which reported boffo quarterly profits this week, benefited from a Federal Deposit Insurance Corp. program guaranteeing newly issued debt that was denied to CIT, Chapman added, "I’m not predicting it, but I wouldn’t be surprised if Goldman Sachs somehow benefits from this."

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Jim Sinclair’s Commentary

Nothing has been solved. Nothing has been changed. This is what scares the absolute hell out of me. The major problem hasn’t even been touched. Outside of gold is there any future?

The Top 5 International Banks Are Keeping The Derivatives Beast Alive
JULY 17, 2009…3:27 PM

Time to revisit the Derivatives Beast.  It hasn’t been growing rapidly for the last year but is poised to balloon even bigger.  This is due to the near total lack of any regulation on the part of governments.  The central bankers conspiring with the top 5 banking houses are keeping this business going.  They do NOT want the derivatives market controlled.  This is a source if immense income flows for them.  They want all the risks of the derivatives markets to move effortlessly to government ledgers so the public eats any losses.  The lastest OCC derivatives report is an eye-opener.

.AIG Swaps May Take Decades to Expire Leaving a ‘Toxic Pool’ – Bloomberg.com

European banks including Societe Generale SA and BNP Paribas SA hold almost $200 billion in guarantees sold by New York-based AIG allowing the lenders to reduce the capital required for loss reserves. The firms may keep the contracts to hedge against declining assets rather than canceling them as AIG said it expects the banks to do, according to David Havens, managing director at investment bank Hexagon Securities LLC.

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Jim Sinclair’s Commentary

Let’s raise this week’s bank failures to five.
Information for Temecula Valley Bank, Temecula, CA
http://www.fdic.gov/bank/individual/failed/temecula.html

Information for Vineyard Bank, National Association, Rancho Cucamonga, CA
http://www.fdic.gov/bank/individual/failed/vineyard.html

Information for BANKFIRST, Sioux Falls, SD
http://www.fdic.gov/bank/individual/failed/bankfirst.html

Information for First Piedmont Bank, Winder, GA
http://www.fdic.gov/bank/individual/failed/piedmont.html

Information for Bank of Wyoming, Thermopolis, WY
http://www.fdic.gov/bank/individual/failed/wyoming.html

Jim Sinclair’s Commentary

The "Government Rescue" has been initiated, but for the Fat Cats who spit upon the public serfs. As the real economy rolls over and unemployment sets records, the legislative, fearful of their own tenure, will push through aid to all kinds of popular problems. This will serve to increase the Federal Budget deficit putting terminal downward pressure on the US dollar.

It is starting.

Senators Outraged About Foreclosures
Jul 17 2009, 10:25 am by Daniel Indiviglio

Yesterday, the Senate Banking Committee held a hearing to address the ongoing foreclosure problem. Both sides of the aisle tore into representatives from banks, servicers and the Obama administration. Leading the charge, Chairman Dodd (D-CT) asked:

So I’m hoping that, with stakes this high, somebody can explain to me why nothing has changed over the last two years.

Let me give it a shot.

First, I would point the Senator to yesterday’s post about servicers and re-defaults. There, he’ll find two reasons:

1. Servicers have an incredible amount of volume to deal with, as many distressed homeowners want modifications. They either haven’t had time to ramp up their staffs to process all applications, or don’t want to.

2. Many of those who have gotten modifications will re-default, because no reasonable new mortgage terms will actually result in their being able to cope with the principal balance of the mortgage.

Then, there are a few other reasons:

3. Many don’t (or shouldn’t) qualify for modifications, for the same reason as #2. They’re better off foreclosing, as they just can’t afford their mortgage under any terms a bank would accept.

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Jim Sinclair’s Commentary

The proper title here is "Goldman Squabbles With Itself."

Goldman Sachs bites Uncle Sam’s hand
The investment bank is fat and happy again, but you wouldn’t know it from it squabbling with the Treasury over the warrants in the TARP deal.
By Allan Sloan, senior editor at large
July 17, 2009: 10:39 AM ET

NEW YORK (Fortune) — I’ve always thought that the guys running Goldman Sachs were really smart, not only about making money, but also about projecting a classy image to the world outside of Wall Street. Clearly, I overestimated them.

If there was ever a firm with the motivation — and the money — to be gracious to the U.S. taxpayers who kept it alive when the financial markets were imploding, it’s Goldman. It had a chance to look good and do good for taxpayers and itself and Wall Street for a relative pittance — and has blown it. Horribly.

As you have probably noticed, Goldman is getting attacked for posting record profits and setting aside a record amount for employee compensation about three seconds after it repaid its $10 billion of loans from the Troubled Asset Relief Program. Repaying those loans freed Goldman from pay restrictions on its top honchos, who seem headed for record or near-record bonuses unless things go badly for the firm in the second half of the year.

What you probably don’t know is that Goldman, flush with cash and profits, is squabbling with the Treasury about how much it should pay taxpayers to buy back the stock purchase warrants it gave the government as part of the TARP deal. Talk about tacky.

Had Goldman retained something it was once reputed to have — a sense of short-term sacrifice in return for long-term profit — it would have agreed to pay the government generously for the warrants. It could have announced that on Tuesday, along with its profits, and looked like a decent, concerned corporate citizen instead of Greedhead Central.

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Jim Sinclair’s Commentary

You think they give a flying you know what?

Goldman saga not so rosy
Diane Francis, Financial Post Published: Saturday, July 18, 2009

This week the headline should have read: "Goldman Sacks America’s Taxpayers" instead of Goldman Sachs posts a US$3.88-billion quarterly profit. The Wall Street firm’s workers are licking their lips at the thought that the firm has set aside enough money to pay out billions in bonuses this year, equivalent to US$770,000 per worker.

This is pretty shocking, even by Wall Street standards, given the firm’s profits derive from direct and indirect taxpayer bailouts forked out by Mr. and Mrs. Average American Taxpayer.

Goldman this week defended itself by reiterating that it received US$10-billion in TARP bailout money last year to avert bankruptcy but has repaid that amount in full.

That is true, but that’s only a fraction of the bailout.

Goldman received an estimated three times more, or US$30-billion, in an indirect bailout funnelled through bankrupt insurer AIG International.

Washington bailed out AIG’s counterparties, to whom it owed hundreds of billions, because AIG had sold to them unbacked credit-default swaps (a form of insurance on bond values). Goldman was not only ahead of the queue in collecting its IOU but is reported to have gotten 100¢ on the dollar to boot.

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Jim Sinclair’s Commentary

Simultaneous is a sign of al Qaida;

Indonesia Bombings Signal Militants’ Resilience
By NORIMITSU ONISHI
Published: July 17, 2009

JAKARTA, Indonesia — The nearly simultaneous suicide bomb attacks at two American hotels on Friday suggested that Islamic terrorist groups, though significantly weakened in Indonesia in recent years, still had the means to mount deadly assaults in one of the most heavily secured areas here in Indonesia’s capital.

Indonesian officials said it was too early to identify those behind the attacks at the hotels, the JW Marriott and the Ritz-Carlton, which killed eight people and wounded at least 50. But they appeared to be focusing on domestic militants, possibly individuals or splinter groups loosely tied to Jemaah Islamiyah, the Southeast Asian terrorist network linked to Al Qaeda.

The attacks were a blow to the Indonesian government, which had been credited with cracking down on Jemaah Islamiyah and for keeping Indonesia free of terrorist attacks since late 2005. The explosions took place nine days after President Susilo Bambang Yudhoyono was overwhelmingly re-elected to a second term, riding a wave of popularity for fighting corruption and restoring a measure of stability.

Mr. Yudhoyono said at a news conference that the “bombings were perpetrated by terrorist groups,” but that he could not say whether “these groups are the same ones” behind previous attacks. He said the attacks may have been linked to the electoral campaign, during which threats were made against him.

Jemaah Islamiyah led several attacks against Western-linked sites in Indonesia this decade, including one in 2003against the Marriott that was struck Friday. A bombing at anightclub in Bali killed 202 people in 2002; two years later, a car bomb at the Australian Embassy here killed 9.

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Jim Sinclair’s Commentary

We are entering into stage 2 of the OTC derivative disaster as the cancerous tentacles of wrongdoing tear at the real economy.

Job losses mount among California government workers
Most Los Angeles County Superior Court operations, including those at the courthouse in Long Beach, above, were shut down Wednesday as a once-a-month unpaid furlough program took effect.
Unemployment in the state holds steady at 11.6% in June, but the outlook worsens in the public sector. The state loses 6,700 government jobs in June and continues to furlough workers and cut services.
By Marc Lifsher and Alana Semuels
July 18, 2009

California shed 66,500 jobs in June, and more losses loom as double-digit unemployment spreads to state and local governments, once reliable bastions of employment security.

June’s 11.6% unemployment rate is a post-World War II record. Professional services, construction and trade continue to top the state’s jobless categories.

But in a troubling sign, governments — a stable part of the state’s economy for a decade — have been laying off thousands of workers in recent months. And far more losses are ahead.

California lost 6,700 government jobs in June after dropping 14,200 in May. Facing huge deficits, the state continues to furlough employees, eliminate jobs and cut services. Most offices were closed Friday.

Layoff notices are piling up at thousands of public schools, where an estimated 17,500 teachers statewide have been told not to return to classrooms in the fall, when they will officially join the ranks of the unemployed.

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Jim Sinclair’s Commentary

When no action is taken to confront the problem what makes you think any of the problem has gone away? I love the way Jill gets back to the real number well above a quadrillion.

Too Little, Too Late For Derivatives Oversight

As the Obama administration sets out to reform the over-the-counter (OTC) derivatives market, Wall Street is scrambling to protect its own profits and put a preemptive kibosh on any regulation that could reduce the lucrative transaction fees or expose criminal wrong-doing.

But no matter how many regulators gain oversight in the derivative markets, how successful the government is at putting in place rules to cage the beast, derivatives are a problem of breathtaking scale that cannot be cleaned up with a quick government fix.

It is currently estimated that there are $684 trillion in outstanding derivatives and another $800 trillion in "shadow" or off-balance-sheet derivatives (which are impossible to calculate because they are not reported), totaling well over $1.4 quadrillion.

This is roughly 27 times the global GDP at $55T, and 7 times aggregate global asset values (of stocks, real estate and private business) at $200T. Obviously, this total amount is not at risk, but the derivatives are based ultimately on underlying asset values or assumptions that if off by even 5%, could create a loss that well exceeds global GDP, and if off by 18% would wipe out global asset values.

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Jim Sinclair’s Commentary

This Administration’s approval ratings are the glue that hold things together.

Polls: Obama approval rating falls below 60 percent
updated 3:27 p.m. EDT, Fri July 17, 2009

WASHINGTON (CNN) — An average of five national polls conducted in July indicates that President Obama’s approval rating has slipped to under 60 percent.

Fifty-seven percent of Americans surveyed approve of the job Obama’s doing as president, according to a CNN Poll of Polls compiled and released Friday, with 36 percent disapproving.

In early June, Obama’s average approval rating was 62 percent. It dropped a point to 61 percent in mid-June and stayed at that level through the rest of the month.

"Recent polls indicate that Obama’s lowest ratings — and biggest losses — come on the public’s perception of how he is handling the economy," said Keating Holland, CNN polling director.

Holland adds: "And the latest CNN/Opinion Research Corp. poll shows a double-digit drop in the number of Americans who think that the president has a clear plan for solving the country’s problems. The public may not be as willing to give Obama the benefit of the doubt after six months on the job as they did when he first took office."

So how does Obama compare to his most recent predecessors six months into a first term?

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Posted at 11:46 AM (CST) by & filed under In The News.

Dear CIGAs,

Happy 12th Birthday to JB Slear’s "Radar."

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Jim Sinclair’s Commentary

As the real economy begins to suffer significantly, as such are the direct implications of the potential bankruptcy of CIT, bankruptcies year to year will exceed a 50% increase.

This does not make for increased auto sales as GM comes out of paper shuffling into the real world of sales.

Bankruptcy Filings up 33 Percent over a 12-month Period: Total 12-month Total of Bankruptcy Filings 1.2 Million. In last Report, Filings up 27 Percent in one month.

Bankruptcy filings are soaring in the United States.  In the last data point, we had 134,282 bankruptcy filings for the month of March 2009.  Bankruptcy data usually lags 3 or 4 months but the trend is ominous.  For the last 12 months some 1.2 million bankruptcy filings have occurred.  Much of this is linked to the26,000,000 unemployed or underemployed Americans being unable to pay their bills or even service their debt.  What is more telling is the amount of Chapter 7 bankruptcies occurring since these are straight liquidations and not like a Chapter 13 restructuring.

Let us examine the most recent data for bankruptcies that highlight this troubling trend:

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What you’ll notice is a significant spike in the March data point.  This monthly jump was enormous.  This was the largest number of quarterly bankruptcy filings since December of 2005 when many were rushing to beat the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.  Yet even with the law making it harder for people to file bankruptcy, most are being forced into austerity and it is hard to squeeze anything further out of a turnip.  What this tells us is that for average Americans there is still a significantly large amount of pain in the real economy.  The unemployment rate is understated by the 9.5 percent headline number.

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Jim Sinclair’s Commentary

Federal guarantees are for showcasing, not for being taken seriously. Or are they?

"For counter-parties to voluntarily terminate those contracts makes no sense,” Havens said in an interview. “There’s no question that asset values have soured on a global basis. With the faith and credit of the U.S. government backing those guarantees, why would they give that up?”

AIG’s European Derivatives May Take Decades to Expire

July 17 (Bloomberg) — American International Group Inc.’s trading partners may force the insurer to bear the risk of losses on corporate loans and mortgages for years beyond the company’s expectations, complicating U.S. efforts to stabilize the firm, analysts said.

European banks including Societe Generale SA and BNP Paribas SA hold almost $200 billion in guarantees sold by New York-based AIG allowing the lenders to reduce the capital required for loss reserves. The firms may keep the contracts to hedge against declining assets rather than canceling them as AIG said it expects the banks to do, according to David Havens, managing director at investment bank Hexagon Securities LLC.

“For counterparties to voluntarily terminate those contracts makes no sense,” Havens said in an interview. “There’s no question that asset values have soured on a global basis. With the faith and credit of the U.S. government backing those guarantees, why would they give that up?”

The falling value of holdings backed by the swaps may force AIG to post more collateral, pressuring the insurer’s liquidity and credit ratings in a repeat of the cycle that caused the firm’s near collapse in September, Citigroup Inc. analyst Joshua Shanker said last week. The insurer needed a U.S. bailout valued at $182.5 billion after handing over collateral on a different book of swaps backing U.S. subprime mortgages.

The average weighted length of the European swaps protecting residential loans is more than 25 years, while the span tied to corporate loans is about 6 years, AIG said in a regulatory filing. Contracts covering corporate loans in the Netherlands extend almost 45 years, and the swaps on mortgages in Denmark, France and Germany mature in more than 30 years.

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Jim Sinclair’s Commentary

The Bank of You is all you can trust. "Morgan Stanley will pay $4.4 million to settle a class-action lawsuit with brokerage clients who bought precious metals and paid storage fees, according to a court filing"

UPDATE 1-Morgan Stanley to settle class-action lawsuit
Tue Jun 12, 2007 7:22pm BST

NEW YORK, June 12 (Reuters) – Morgan Stanley (MS.N: Quote, Profile, Research) will pay $4.4 million to settle a class-action lawsuit with brokerage clients who bought precious metals and paid storage fees, according to a court filing.

The proposed settlement, which must be approved by the federal court in Manhattan, includes a cash component of $1.5 million and economic and remedial benefits valued at about $2.9 million, according to a court filing on Monday.

The suit, filed in August 2005, alleged that Morgan Stanley told clients it was selling them precious metals that they would own in full and that the company would store.

But Morgan Stanley either made no investment specifically on behalf of those clients, or it made entirely different investments of lesser value and security, according to the complaint.

"While we deny the allegations, we settled the case to avoid the cost and distraction of continued litigation," Morgan Stanley said in a statement.

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Jim Sinclair’s Commentary

Apply a little logic here. Paper exchanges are making moves towards settlement in paper products while physical depositories are reaching maximum capacity. That can only mean the exchange warehouses cannot stand a physical audit and do not have the gold to cover the short interest.

The real question is if this isn’t a "Round Robin Ponzi" because logically the EFT cannot be holding significant physical gold, it is paper as well. Therefore Alchemy is real with one rub: you turn paper into gold and it turns back into paper.

Swiss banks running out of storage space for gold bullion
Worries about the economy and the success in marketing gold ETFs has seen Swiss banks finding difficulty in meeting secure storage requirements for gold bullion.
Author: Lawrence Williams
Posted:  Friday , 17 Jul 2009

In a note entitled No more space for Gold Bars, Swiss news website 20 Minuten Online reports that Swiss banks are running out of secure storage space for gold bullion held by investors and institutions.  Fears of hyperinflation, the economic downturn and the success of gold index funds (ETFs), which are supported by physical gold, has led to a run on precious metals investment – and in gold in particular, and in the necessary secure storage space in which to hold it..

One Swiss bank, earlier this year, reported that it was having to relocate some of its stored silver bullion to another site to make room for gold.  The Zurich Kantonal bank put this down to the success of its gold ETF.

The website reports another Swiss investment banker despairing "We have the need to store more gold for our clients but are finding it difficult to find secure storage facilities".  Gold storage makes high demands on security which is what is making the gold holding task more difficult.  Few banks will divulge exactly where their gold is stored for security reasons.

Another banker reported that his bank still had space but that it is beginning to run out.

Some of the problems are being handled by improving the storage systems in existing space.  As one banker commented "A 12.5 kilo gold bar only occupies about the same amount of space as a tetrapak of milk".

While the big U.S. based ETF, the SPDR Gold Trust has recently seen a relatively small decline in its gold holdings with some investors seeking better returns in the markets, the ever-cautious Swiss seem to be seeing continuing growth in locally managed ETFs.  A recent report noted that Swiss Bank, Julius Baer, for example, was still seeing a 3.3% growth in its gold ETF in the current week.  And even though the Swiss Central Bank has been selling gold via the Central Bank Gold Agreement, it still holds 38% of its foreign exchange reserves in the yellow metal.

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Jim Sinclair’s Commentary

Once upon a time Canada was the center of world mineral exploration, but then came the hedge funds.

Chinese companies eyeing bargain Canadian miners for gold, coal, copper and uranium
With recent purchase of C$1.74 billion stake in Teck as an example, Chinese metals producers are said to be looking at Canada’s resource companies to tie in commodity supplies with key targets said to be gold, coal, copper and uranium.
Author: By Pav Jordan
Posted:  Monday , 13 Jul 2009

TORONTO (Reuters) – - China’s purchase of a C$1.74 billion ($1.5 billion) stake in Teck Resources (TCKb.TO: Quote) may be just the opening move from the world’s top resource consumer in a strategy to use its unique wealth advantage to become a key source of mining capital for Canadian firms.

Teck said last week it sold a 17.2 percent equity stake to state-owned China Investment Corp in a deal that allows the Canadian miner to pay down its massive debt while expanding China’s portfolio of commodity investments.

The deal underscores how deep China’s pockets are at a time when many sources of credit and financing have dried up in the global recession, even for the biggest miners.

"Most people thought China would take advantage of this dip in commodity prices and, because they’re the only ones with money, take advantage of this financial situation we are in. They have come through big time, be it oil and gas, or any commodity you can think of," David Davidson, an analyst with Paradigm Capital in Toronto, said in an interview after the Teck deal was announced.

Teck is a major producer of copper, metallurgical coal, zinc and gold, all commodities sought by China.

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Jim Sinclair’s Commentary

You know this is coming!

Israeli navy in Suez Canal prepares for potential attack on Iran
Sheera Frenkel in Jerusalem
July 16, 2009

Two Israeli missile class warships have sailed through the Suez Canal ten days after a submarine capable of launching a nuclear missile strike, in preparation for a possible attack on Iran’s nuclear facilities.

The deployment into the Red Sea, confirmed by Israeli officials, was a clear signal that Israel was able to put its strike force within range of Iran at short notice. It came before long-range exercises by the Israeli air force in America later this month and the test of a missile defence shield at a US missile range in the Pacific Ocean.

Israel has strengthened ties with Arab nations who also fear a nuclear-armed Iran. In particular, relations with Egypt have grown increasingly strong this year over the “shared mutual distrust of Iran”, according to one Israeli diplomat. Israeli naval vessels would likely pass through the Suez Canal for an Iranian strike.

“This is preparation that should be taken seriously. Israel is investing time in preparing itself for the complexity of an attack on Iran. These manoeuvres are a message to Iran that Israel will follow up on its threats,” an Israeli defence official said.

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Jim Sinclair’s Commentary

How is Israel going to stand this?

Iran in mass production of long-range, solid-fuel Sejil surface missiles
DEBKAfile Exclusive Report
July 13, 2009, 7:17 PM (GMT+02:00)

Iran is slowing down the manufacture of the Shehab-3 surface missile in favor of mass production of the more accurate two-stage 2,000-kilometer range Sejil II ballistic missile powered with solid fuel, which was successfully tested on May 20, DEBKAfile’s military and Iranian sources report.

More than 1,000 new Sejil IIs are projected to come off production lines in five years, at the rate of 200 a year.

Western sources say the Iranians are over-ambitious and can deliver no more than 10-15 missiles a year at present, although with a huge multi-billion dollar investment they might raise output to 30.

Liquid-fuel missiles like the Shehab take hours to prepare for firing, during which time they are exposed to oversight by US and Israel spy satellites, whereas the Sejil because it is powered by solid fuel has the huge advantage of stealth. It can only be detected by military satellites and early warning radar systems like the American FBX-T posted in the Israeli Negev after it is airborne and winging towards target.

Iran has also recruited Chinese missile experts to assist in the production of mobile launchers for the Sejil II. The combination of the solid-fuel Sejil mounted on mobile vehicles will give an Iranian missile attack the advantage of surprise, because of the difficulty of tracking and targeting them from space or the air.

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Jim Sinclair’s Commentary

Now 90% of the planet’s nations call for dollar diversification. This does not speak well for marketing the ever increasing supply of US Treasury offerings and is therefore very negative for the US dollar.

Developing world calls for ‘new world order’

More than 50 heads of state from the developing world met Wednesday in Egypt to tackle the fallout from the global economic meltdown, with calls for a "new world order" to prevent a repeat of the crisis.

Cuban President Raul Castro said in a speech at the opening session of the Non-Aligned Movement summit that the financial crisis had hit developing nations the hardest.

"Every country in the world must seek just solutions to the global economic crisis," Castro told the 118-member body at the gathering in the Red Sea resort of Sharm el-Sheikh.

"We call for a new monetary and economic world order… we must restructure the world financial system to take into consideration the needs of developing countries."

Global power dynamics also need to be addressed, Libyan leader Moamer Kadhafi said, demanding a restructuring of the UN Security Council which he branded a form of terrorism "monopolized by a few countries that are permanent members."

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Jim Sinclair’s Commentary

You knew this was going to happen according to my 2006 Formula.

Still seeing it happen is shocking. This is not good for the US dollar or US debt. It will happen in 1000s cities and towns before this is over.

Dumping CIT, and it is dumped, is a terrible mistake. The purchase of bits and pieces will not avoid the awful implications of this mistake.

City suspends payment of contracts
Friday, July 17, 2009

Running out of cash because of the state budget deadlock, the City of Philadelphia has stopped paying many of its bills until the impasse is resolved, City Finance Director Rob Dubow said this morning.

The city must temporarily withhold about $120 million in July and August to avoid running out of cash completely, Dubow said. Payments to contractors stopped Wednesday. Dubow, Budget Director Stephen Agostini and Treasurer Rebecca Rhynhart said that the city will pay its payroll, benefits, debt service and "emergency" contracts. The $4 million a month paid to foster parents, for instance, is considered an emergency, and other contracts will be considered on a case-by-case basis.

In a noon press conference, Mayor Nutter said the city would ask vendors to "understand where we are."

"We’re asking them to work with us through this crisis," Nutter said.

The city is suffering for a number of reasons, all related to the state budget, city officials said.

First, the city anticipated receiving nearly $100 million in state payments in July and August that are frozen until a new budget passes. Second, the city is asking the legislature to approve a 1-cent increase in the sales tax, which would generate about $9 million a month, beginning Aug. 1. Third, the city had planned, as it does every year, to take out a $275 million, short-term "tax revenue anticipation note" or TRAN, which municipalities use to provide cash to cover expenses until their tax revenues are collected.

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Posted at 2:05 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Yesterday it was the CPI numbers that shot the deflationists in the butt and resulted in a rip roaring rally in the Euro and the commodity currencies. Today it was the Philadelphia Fed Manufacturing Index which promptly returned the favor and kneed the inflationists in the groin sending the bond market up a full point at one time during the session and knocking the stuffing out of the commodity currencies allowing the Yen to take back just about all of its losses from the previous day. The YO-YO is alive and well.

Once again the hedgies and their algorithms are alive and well with their thoroughly analyzed, strategic approach to the market based on their excruciating detailed studies of long term macroeconomics (long term with them is 30 minutes) on full display as they reversed just about everything they had done the previous day. What more can one say? The Casino is alive and well!

The Dollar was stable going into today’s early New York session but as soon as the Philly Fed numbers hit the screen, up it went as did the Yen which literally SOARED higher as all the risk takers of yesterday became little chipmunks today and ran for the comfort of their burrows. Even knowing what these idiots are going to do does not take away the feeling of wonder and awe that grown-up, otherwise intelligent human beings could act in such a schizophrenic and irrational manner and do it day after day after day. I know I have said it in jest but I am beginning to wonder if we are seeing the long term effects of overexposure to computer video games and how they damage the human brain.

All these hedgies need is a two-sided coin and they could play the part of Harvey Dent, alias Two-Face, in the next Batman movie.

Back to gold however – the resistance zone from yesterday that appeared near $940 is still intact and until gold can manage a closing breach above that level, it will not be able to garner sufficient buying from these momentum based funds to drive it up and through $950 which would give it a chance at breaking out of the range trade that currently defines it. Any sign of “safe haven” buying in the US Dollar emboldens the bullion banks and some of the predatory quant funds to come in and sell the metal. Support lies initially back down near the $920 level. Some rolling of positions out of August and into December gold are already occurring.

Additionally, gold still needs help from the crude oil market to help propel it through the offers that sit above the market. News out of China that its stimulus was apparently working and generating growth helped bring in some buyers to crude that offset some of the selling initially associated with the Philly Fed numbers. Incidentally, that same Chinese news buoyed the copper market today and kept it rather insulated against the other outside market influences.

Considering the weakness in gold the mining shares have held up relatively well thus far into the session.

Posted at 12:49 PM (CST) by & filed under General Editorial.

Dear CIGAs,

This is really going to anger China, the BRICs and our Saudi/Kuwaiti Bankers

I have repeatedly told you that the problems that landed us in this mess have not been addressed. The reason is simple. The company going broke is the loser on the OTC derivative and therefore requires a cash injection in order to pay the winner on the OTC derivative. The winners are those banks reporting huge gains from their trading activities.

The entire plot is right in front of your eyes but you do not see it.

The main aggrieved party is of course the US citizen picking up the bill via long term IOUs called government bonds, but there is another powerful and aggrieved party as well – China.

CIT is going to light a Roman Candle in the hands of China and BRICs China leads.

Think about the US this week assuring the powerful Middle Eastern nations financially friendly to the USA that all was well and improving.

I am sure China and BRICs are not going to simply jump up and down screaming bloody murder. There is something I cannot yet define that is coming down the track at the dollar. My eyes and ears are open everywhere.

Please, look at these charts very carefully. This article was simply too good not to post.

Credit must be given when credit is so clearly due.

Derivatives Crisis: More Bailouts On Deck?
15 JULY 2009

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The derivatives market is about as ugly as it gets, and puts a new edge on ‘too big to fail, to big to exist."

The banks want to keep the game going because it suits their current model of taking risks, making huge bonuses, and writing off the losses to the public.

It remains to be seen if the Obama Administration has what it takes to regulate and rein in the banks. While Larry Summers and Tim Geithner are on the team the answer is probably ‘no.’

One thing which strikes us as odd in this Bloomberg article is the emphasizing of stimulus as a source of future crisis. All things considered two trillion in stimulus across the globe is a relative drop in the buck-et compared to what the bank bailouts are costing in direct and indirect taxation on the real economy. Bloomberg seems to be crusading against anyone but the bigh banks getting public money, so perhaps it is not surprising.

As you know, CIT is deeply troubled, and most likely heading towards some sort of managed bankruptcy. The company is said to be holding counter party risk with many banks including Goldman Sachs. The rally may be based on strong rumours of an imminent bailout for CIT. The word on the Street is that Geithner and Summers caved again after a few key phone calls.

Let’s see how the Obama Administration handles yet another financial institution brought low by bad risk management in pursuit of outsized profit.

Wall Street and their demimonde in the government and the media hate stimulus packages designed to assist the ordinary Joe, even if all it does is ease the pain during a steep downtrend (which was caused by the financial sector). They hate it, unless there is a way to charge fees in its distribution, and turn it into a profit-making venture for them where they derive most if not all of the benefits.

The dollar and the US bond are taking it repeatedly on the chin. As are most of the US public and the holders of its debt.

The timeframe Mr. Mobius has for the next major crisis is way out on the far edge of any projection we think is probable by quite some distance. Its not clear that it really matters, given the significant hurdles facing the economy this year.

Let’s see how the Boys handle the burgeoning Commercial Real Estate, Pension, and Stage Government crises. I think they may very well precede the derivatives coup de grace, and several of them are big enough to be show-stoppers, if not triggers for a larger systemic meltdown.

Until the banks are restrained, and the financial system is reformed, and balanced is restored to the economy, there will be no sustained recovery.

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The Obama team is incompetent, and probably worse. Its a great disappointment. They are showing all the wrong moves on the economy.

All the charts included here are from our friends at ContraryInvestor.

Mobius Says Derivatives, Stimulus to Spark New Crisis
By Kevin Hamlin (Beijing)

July 15 (Bloomberg) — A new financial crisis will develop from the failure to effectively regulate derivatives and the extra global liquidity from stimulus spending, Templeton Asset Management Ltd.’s Mark Mobius said.

“Political pressure from investment banks and all the people that make money in derivatives” will prevent adequate regulation, said Mobius, who oversees $25 billion as executive chairman of Templeton in Singapore. “Definitely we’re going to have another crisis coming down,” he said in a phone interview from Istanbul on July 13.

Derivatives contributed to almost $1.5 trillion in writedowns and losses at the world’s biggest banks, brokers and insurers since the start of 2007, according to data compiled by Bloomberg. Global share markets lost almost half their value last year, shedding $28.7 trillion as investors became risk averse amid a global recession.

The U.S. Justice Department is investigating the market for credit-default swaps, Markit Group Ltd., the data provider majority-owned by Wall Street’s largest banks, said July 13.

Mobius didn’t explain what he thought was needed for effective regulation of derivatives, which are contracts used to hedge against changes in stocks, bonds, currencies, commodities, interest rates and weather. The Bank for International Settlements estimates outstanding derivatives total $592 trillion, about 10 times global gross domestic product.

Looming Crisis

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“Banks make so much money with these things that they don’t want transparency because the spreads are so generous when there’s no transparency,” he said.

A “very bad” crisis may emerge within five to seven years as stimulus money adds to financial volatility, Mobius said. Governments have pledged about $2 trillion in stimulus spending.

The Justice Department’s antitrust division sent civil investigative notices this month to banks that own London-based Markit to determine if they have unfair access to price information, according to three people familiar with the matter.

Treasury Secretary Timothy Geithner last week urged Congress to rein in the derivatives market with new U.S. laws that are “difficult to evade.” He said strong capital requirements were the key.

Geithner repeated President Barack Obama’s call to force “standardized” contracts onto exchanges or regulated trading platforms, and regulate all dealers.

Credit Freeze

The plan to regulate the derivatives market is part of a wider overhaul of financial industry rules meant to prevent any possibility of a repeat of last year, when the collapse of Lehman Brothers Holdings Inc. and American International Group Inc. froze credit markets and worsened the global recession.

In the Senate, Agriculture Committee Chairman Tom Harkin, an Iowa Democrat, is pushing for legislation that would require all over-the-counter derivatives trades be traded on regulated exchanges, not just standardized ones as the Obama administration is seeking.

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U.K. banks will be forced to curb trading activity that helped cause the global financial crisis, Britain’s top financial regulator said last month, while stopping short of seeking to separate their lending and securities units.

“Banks have lobbied hard against any changes that would make them unable to take the kind of risks they took some time ago,” said Venkatraman Anantha-Nageswaran, global chief investment officer at Bank Julius Baer & Co. in Singapore. “Regulators are not winning the battle yet and I’m not sure if they are making a strong case yet for such changes.”

Mobius also predicted a number of short, “dramatic” corrections in stock markets in the short term, saying that “a 15 to 20 percent correction is nothing when people are nervous.”

Emerging-market stocks “aren’t expensive” and will continue to climb, Mobius said. He said he favors commodities and companies such as London-based Anglo American Plc, which has interests in platinum, gold, diamonds, coal and base metals.

In China and India, Mobius sees value in consumer-oriented stocks and banks, he said.

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