Posted at 5:31 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

California is a functional state bankruptcy. 39 more states are right behind. It is not a question of if they will fail, but when they will admit it has already happened.

None of this is positive for the US dollar when you consider that Greece does not make up even 3% of Euroland’s GDP and has upset the euro.

We can easily have bankruptcies of US states in excess of 33% of the national GDP.

Illinois enters a state of insolvency
By: Paul Merrion, Greg Hinz and Steven R. Strahler
January 18, 2010

As Illinois’ fiscal crisis deepens, the word "bankruptcy" is creeping more and more into the public discourse.

"We would like all the stakeholders of Illinois to recognize how close the state is to bankruptcy or insolvency," says Laurence Msall, president of the Civic Federation, a fiscal watchdog in Chicago.

"Bankruptcy is the reality that looms out there," Republican gubernatorial candidate Andrew McKenna Jr. says.

While it appears unlikely or even impossible for a state to hide out from creditors in Bankruptcy Court, Illinois appears to meet classic definitions of insolvency: Its liabilities far exceed its assets, and it’s not generating enough cash to pay its bills. Private companies in similar circumstances often shut down or file for bankruptcy protection.

"I would describe bankruptcy as the inability to pay one’s bills," says Jim Nowlan, senior fellow at the University of Illinois’ Institute of Government and Public Affairs. "We’re close to de facto bankruptcy, if not de jure bankruptcy."

Legal experts say the protections of the federal bankruptcy code are available to cities and counties but not states.

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Jim Sinclair’s Commentary

Friday’s first hit.

Bank Closing Information – January 22, 2010

These links contain useful information for the customers and vendors of these closed banks.

Premier American Bank, Miami, FL

http://www.fdic.gov/

Jim Sinclair’s Commentary

The only time that I can recall a more embarrassing time for the USA and its financial leadership was when President Carter’s entire cabinet submitted their resignation.

This is a horrible mess with no practical solution. This is so far from dollar positive it borders on bad comedy.

AIG Took Four Tries on Filing as Fed Asked to Withhold Data
By Hugh Son and Michael J. Moore

Jan. 21 (Bloomberg) — American International Group Inc. submitted four rounds of regulatory filings in six months, with more than 1,000 redactions, as the Federal Reserve Bank of New York pressed the insurer to withhold data about bailout payments to banks.

The insurer made an initial filing on Dec. 2, 2008, about Maiden Lane III, the taxpayer-funded vehicle that bought assets from AIG’s trading partners. After the Securities and Exchange Commission asked for more information, AIG amended December filings three times. The last set of amendments, in May 2009, included more than 400 redactions, and the SEC granted the company permission to withhold the omitted data until 2018.

According to e-mails released this month, AIG was asked to limit what the public knew about the Maiden Lane transactions. The payments have been called a “backdoor bailout” by lawmakers because banks, including Goldman Sachs Group Inc. and Societe Generale SA, were reimbursed at 100 cents on the dollar for mortgage-linked securities that had declined in value.

“This has been terribly mishandled,” said James D. Cox, a professor of corporate and securities law at Duke University School of Law. “There’s this pattern that emerges that the New York Fed, for a variety of reasons including not causing nervousness about who was an AIG counterparty, covered up its rather heavy-handed approach to the bailout.”

Federal Reserve Chairman Ben S. Bernanke invited congressional auditors to do a “full review” of the AIG rescue and the New York Fed provided 250,000 pages of documents to a House panel this week. The New York Fed said Jan. 19 that it “assisted AIG in ensuring the accuracy of its disclosures and protected important U.S. taxpayer interests” and that the insurer was responsible for its disclosures.

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Jim Sinclair’s Commentary

The US dollar rally is based on the assumption of a sustainable US economic recovery. That certainly looks like an over the top expectation for a set of gnarly circumstances.

Bottom bouncing has no less than a 50% chance of being bottom busting if the administration loses its wealth effect in the equity markets.

You have to see that there is no defined long term plan in Washington, but instant reactions to daily circumstances, many not well thought out.

This quote from the following article says it all, "We do not foresee any meaningful improvement in the retail card credit quality in the coming months," said Managing Director Michael Dean. "U.S. consumers remain under stress on a number of fronts, most notably on the employment front, and retail card chargeoffs will continue to reflect those pressures."

Fitch: U.S. Retail Credit Card Defaults Hit Near-Record Levels with No Relief in Sight
January 20, 2010

U.S. consumers defaulted on store-branded credit cards at near-record levels during the holiday shopping season, with 2010 likely to bring more of the same trend, according to Fitch Ratings.

Fitch’s December Retail Credit Card Index results show that more than one in every eight dollars of receivables was written off as uncollectable during the November collection period on an annualized basis. Taken with the recent delinquency trends and Fitch’s expectation for unemployment, Fitch expects retail card chargeoffs to remain elevated throughout first half-2010.

"We do not foresee any meaningful improvement in the retail card credit quality in the coming months," said Managing Director Michael Dean. "U.S. consumers remain under stress on a number of fronts, most notably on the employment front, and retail card chargeoffs will continue to reflect those pressures."

Despite the elevated chargeoff and delinquency measures, Fitch expects retail card ABS ratings to remain stable throughout 2010. Excess spread remains robust, which coupled with loss coverage multiples and other structural protections will shield investors from potential downgrades or early amortization scenarios.

In December, Fitch’s Retail Credit Card Chargeoff Index snapped a two-month decline, rising 122 basis points (bps) to 12.56% from the previous month. Throughout 2009, chargeoffs surpassed the previous record (12.25% in January 2005) five times, establishing a new all-time high of 12.81% in August. Throughout the year, retail chargeoffs averaged 11.88% (more than 42% above the historical average of 8.34%).

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Jim Sinclair’s Commentary

Paranoid, or just being prepared?

These guys have armed themselves, but are more likely to shoot eachother.

This is the last dip at the well!

Goldman Sachs Had Bomb-Sniffing Dogs, Police Barricades At Its Headquarters Before Earnings Announcement
First Posted: 01-22-10 08:59 AM

As Goldman Sachs prepared to announce its fourth quarter earnings and employee compensation levels yesterday, the bank had bomb-sniffing dogs and police barricades on hand at its New York City headquarters, the New York Post reports.

The decision to boost security as its offices was apparently driven by growing fervor over the bank’s huge profits and bonuses. Yesterday, the bank announced that it earned $13.4 billion for the year, and set aside $16 billion for employee compensation. Goldman was widely expected to set aside approximately $20 billion for employee pay, but CFO David Viniar suggested yesterday in a call with reporters that the bank wasn’t blind to the "pain and suffering in the world" and "wasn’t deaf to the calls for restraint."

Viniar’s remarks indicate an abrupt change in tone among Goldman Sachs execs. In November, CEO Lloyd Blankfein — who had previously bragged that the bank was doing "God’s work" — said the following at an industry conference:

I often hear references to higher compensation at Goldman. What people fail to mention is that net income generated per head is a multiple of our peer average. The people of Goldman Sachs are among the most productive in the world."

Despite what seems to be a new concern among the firm’s leaders about the PR implications of Goldman’s banner year, the bank’s announcement of the pay packages that individual executives receive will be closely scrutinized. Dealbook spoke to one Goldman insider, who suggested Blankfein’s bonus will be a measuring stick for employees who may see their pay cut. (Blankfein earned $68 million in 2007, but didn’t receive a bonus last year.) Here’s Dealbook:

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Jim Sinclair’s Commentary

The following video on yesterday’s most important event, the Supreme Court decision that allows corporations to make unlimited political donations, is extremely important.

Take a few minutes to review this.

 

 

Jim Sinclair’s Commentary

Jobs, jobs and more jobs are what voters want.

That is not forthcoming, and you can count on the continued pressure on the panic button.

Florida and Flagler County December Unemployment Rate Rises
Flagler’s 16.9% unemployment rate is the highest in the state. The state unemployment rate is 11.8%
By Toby Tobin

Palm Coast, FL – January 22, 2010 – Again, Flagler County leads Florida as the county with the highest rate of unemployment. December’s unemployment rate in the county was 16.9%, up from 16.8% in November and 11.8% in December 2008. Florida’s unemployment rate in December was 11.8% compared to 11.5% in November and 7.6% in December ’08. Florida’s rate is the highest since May 1975 when it was 11.9%.

Flagler was followed by:

Hernando – 14.9%
St. Lucie – 14.2%
Indian River – 14.1%
Marion – 14.0%

Nationally, the unemployment rate stayed at 10%. Eleven states and Washington DC were above the national average. Four states and the District of Columbia had rates higher than Florida:

California – 12.4%
District of Columbia – 12.1%
Michigan – 14.6%
Rhode Island – 12.9%
South Carolina – 12.6%

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Jim Sinclair’s Commentary

If you are going bull on the US dollar it might be wise to review this article first.

Do you now think that 2010 may be a very important midterm election year that could easily guarantee a one term administration?

The Global Debt Bomb
Daniel Fisher, 02.08.10, 12:00 AM ET

Kyle Bass has bet the house against Japan–his own house, that is. The Dallas hedge fund manager (no relation to the famous Bass family of Fort Worth) is so convinced the Japanese government’s profligate spending will drive the nation to the brink of default that he financed his home with a five-year loan denominated in yen, which he hopes will be cheaper to pay back than dollars. Through his hedge fund, Hayman Advisors, Bass has also bought $6 million worth of securities that will jump in value if interest rates on ten-year Japanese government bonds, currently a minuscule 1.3%, rise to something more like ten-year Treasuries in the U.S. (a recent 3.4%). A former Bear Stearns trader, Bass turned $110 million into $700 million by betting against subprime debt in 2006. "Japan is the most asymmetric opportunity I have ever seen," he says, "way better than subprime."

Bass could be wrong on Japan. The island nation (and the world’s second-largest economy) has defied skeptics for so long that experienced traders call betting against it "the widowmaker." But he may be right on the bigger picture. If 2008 was the year of the subprime meltdown, 2010, he thinks, will be the year entire nations start going broke.

The world has issued so much debt in the past two years fighting the Great Recession that paying it all back is going to be hell–for Americans, along with everybody else. Taxes will have to rise around the globe, hobbling job growth and economic recovery. Traders like Bass could make a lot of money betting against sovereign debt the way they shorted subprime loans at the peak of the housing bubble.

National governments will issue an estimated $4.5 trillion in debt this year, almost triple the average for mature economies over the preceding five years. The U.S. has allowed the total federal debt (including debt held by government agencies, like the Social Security fund) to balloon by 50% since 2006 to $12.3 trillion. The pain of repayment is not yet being felt, because interest rates are so low–close to 0% on short-term Treasury bills. Someday those rates are going to rise. Then the taxpayer will have the devil to pay.

Whether or not you believe the spending spree was morally justified, you have to be concerned about the prospect of a dismal, debt-burdened fiscal future. More debt weighs heavily on GDP, says Carmen Reinhart, a University of Maryland economist. The coauthor, with Harvard professor Kenneth Rogoff, of This Time It’s Different: Eight Centuries of Financial Folly (Princeton, 2009), Reinhart has found that a 90% ratio of government debt to GDP is a tipping point in economic growth. Beyond that, developed economies have growth rates two percentage points lower, on average, than economies that have not yet crossed the line. (The danger point is lower in emerging markets.) "It’s not a linear process," she says. "You increase it over and beyond a high threshold, and boom!" The U.S. government-debt-to-GDP ratio is 84%.

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Jim Sinclair’s Commentary

Washington is moved by one thing, and that is the maintenance of a power base.

Jobs are all the voters care about. Jobs depend on a sustained economic recovery.

The chances of a sustained economic recovery is gnarly at best.

Who’s Up for Reelection in 2010? Full List

Retiring Senators
Ted Kaufman (D) of Delaware
Kit Bond (R) of Missouri
Sam Brownback (R) of Kansas
Mel Martinez (R) of Florida
George Voinovich (R) of Ohio

Democratic incumbents
Blanche Lincoln of Arkansas
Barbara Boxer of California
Michael Bennet of Colorado
Christopher Dodd of Connecticut
Daniel Inouye of Hawaii
Roland Burris of Illinois
Evan Bayh of Indiana
Barbara Mikulski of Maryland
Harry Reid of Nevada
Kirsten Gillibrand of New York
Chuck Schumer of New York
Byron Dorgan of North Dakota
Ron Wyden of Oregon
Arlen Specter of Pennsylvania
Patrick Leahy of Vermont
Patty Murray of Washington
Russ Feingold of Wisconsin

Republican incumbents
Richard Shelby of Alabama
Lisa Murkowski of Alaska
John McCain of Arizona
Johnny Isakson of Georgia
Mike Crapo of Idaho
Chuck Grassley of Iowa
Jim Bunning of Kentucky
David Vitter of Louisiana
Judd Gregg of New Hampshire
Richard Burr of North Carolina
Tom Coburn of Oklahoma
Jim DeMint of South Carolina
John Thune of South Dakota
Bob Bennett of Utah

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Thoughts For The Day:

The arrogance the Fed is displaying to the press in their angry state of mind over the AIG inquiry combined with the arrogance of the banksters in public testimony has assured that this begging bowl bonus season is the last dip at the well.

 

Jim Sinclair’s Commentary

In the first round of this financial crisis we financed busted European and British financial entities by doing swaps with the ECB, the Bank of England and the Swiss National Bank. What is somewhat comical is the FDIC that cannot fiducially meet its present obligation while looking to take on more. What a mess!

FDIC and Bank of England Announce Enhanced Cooperation in Resolving Troubled Cross-border Financial Institutions

The Federal Deposit Insurance Corporation (FDIC) and the Bank of England today announced their agreement to a memorandum of understanding (MOU) expanding their cooperation when they act as resolution authorities in resolving troubled deposit-taking financial institutions with activities in the United States and United Kingdom. The MOU was signed by FDIC Chairman Sheila Bair and Bank of England Governor Mervyn King.

The MOU represents a commitment by the FDIC and Bank of England to enhance their collaboration to promote greater coordination in the face of distress at banks that operate in the two countries and thus protect the wider public interest. It recognizes the importance of close and effective communication about the operations of financial institutions covered by the MOU and differing national laws, consultation on developing issues, cooperative contingency planning for firms covered by the MOU, and supporting the development of appropriate recovery (going concern) and resolution (gone concern) plans. In such areas, the MOU also underlines the need for the FDIC and the Bank to work closely together with other authorities in the United States and the United Kingdom.

Most importantly, the MOU represents a commitment to cooperate in the resolution of cross-border firms in compliance with the laws and regulations of the United States and the United Kingdom.

Bank of England Governor King and Chairman Bair agreed that this MOU is an important step towards improved coordination.

FDIC Chairman Bair said, "The recent financial crisis demonstrates that greater international coordination among resolution authorities as well as resolution processes capable of resolving the largest, most complex financial institutions are necessary to protect the public. This MOU is an invaluable step forward toward implementing the recommendations of the Basel Committee’s Cross Border Resolution Group, which the FDIC co-chaired. It is also a further step in support of the continuing work of the Financial Stability Board’s Crisis Management Working Group, chaired by Paul Tucker of the Bank of England."

Bank of England Governor King said, "A key legislative response in the United Kingdom to the recent financial crisis has been the adoption of a special resolution regime that enables failed UK banks to be resolved in the public interest. The Bank of England has in consequence become a resolution authority in the United Kingdom and, as such, it makes good sense to develop close relationships with other resolution authorities so that the toolkit and powers now available to us can be applied effectively to large and complex cross-border banks. The MOU should also help to enhance coordination with other regulatory authorities in the United States and United Kingdom."

Attachment:

Memorandum of Understanding – PDF (PDF Help)

# # #

Notes to editors:

1. Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation’s banking system. The FDIC insures deposits at the nation’s 8,099 banks and savings associations and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars – insured financial institutions fund its operations.

2. The Bank of England has two core purposes: it exists to ensure monetary stability and to contribute to financial stability. In February 2009, the Banking Act 2009 was introduced which gave the Bank new responsibilities and powers in relation to financial stability. A key part of the Banking Act was the creation of a Special Resolution Regime (SRR) which gives the UK Tripartite authorities – the Treasury, Bank of England and Financial Services Authority (FSA) – a permanent framework providing tools for dealing with distressed banks and building societies. Further information about the UK Special Resolution Regime is available on the Bank of England’s website at: http://www.bankofengland.co.uk/financialstability/role/risk_reduction/srr/

Posted at 1:55 PM (CST) by & filed under General Editorial.

Dear Friends,

This administration has its head in rarefied Wall Street air. They honestly believe the reason they lost Mass. was public anger at the banksters alone. Now they have set things in total flux both for the re-nomination of Bernanke and the loss of their bankster’s backing, but also at a time when the Supreme Court declared no limits on corporate political giving.

Unleashing those corporate political funds will result in a battle bigger than the health bill in the sense of lobbyists over new banking rules.

All of this is meaningless looking forward to the November 2010 elections. All that counts is jobs, jobs and more jobs.

What is clear here is that the panic button has been pushed by the administration who still thinks they live in Wall Street, not Main Street. Be assured that Volcker understands the systemic disaster we are in, and will do nothing to pull the plug on the mountain of OTC derivatives. He is simply too smart for that.

Getting the banks out of the guaranteed risk business is a long term correction, but still not the basic problem. The horse is out of the barn, the damage has been done and there is no immediate or medium term fix in taking the banks out of the OTC derivative business.

The basic problem that still exists is the fraudulent OTC derivatives produced since 1991 that are yet to be addressed in any manner or form except through the capitulation of FASB, which permitted falsified values. All that did was make the situation worse.

Nothing that has occurred is dollar positive.

The economic reason for the dollar rally was the bullish Christmas financial party prediction that is simply non-existent and therefore not sustainable. It is a business activity bottom bouncing experience that can easily have its bottom plug pulled now that everything has been sent into a state of flux.

Stay the gold course. Things are becoming more, not less of a mess, and it is not hard to see. Only gold can guarantee you against the madness of our financial leadership. Remember the big economic lie works if repeated loudly again and again, but when the public feels the pain of the big lie it collapses in on itself. The man who invented MOPE made that statement. It proved true politically in the German campaign against the Russian winter. It imploded in Germany in 1944.

Economically it is appearing thin now. The voters have rebelled.

Respectfully,
Jim

Posted at 1:43 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

Did we just officially become a fascist state by allowing corporations to own the government with the courts fully behind them? Please see the attached definition.

CIGA Hen

"Fascism, pronounced /ˈfæʃɪzəm/, is a political ideology that seeks to combine radical and authoritarian nationalism[1][2][3][4] with a corporatist economic system,[5] and which is usually considered to be on the far right of the traditional left-right political spectrum.[6][7][8][9][10]

Fascists advocate the creation of a single-party state,[11] with the belief that the majority is unsuited to govern itself through democracy and by reaffirming the benefits of inequality.[12] Fascist governments forbid and suppress openness and opposition to the fascist state and the fascist movement.[13] Fascism opposes class conflict, blames capitalism and liberal democracies for its creation and communists for exploiting the concept.[14] Fascism fashioned itself as the "complete opposite of Marxian socialism"[12] by rejecting the economic and material conception of history, the fundamental belief of fascism being that human beings are motivated by glory and heroism rather than economic motives, in contrast to the worldview of capitalism and socialism.[12]

In the economic sphere, many fascist leaders have claimed to support a "Third Way" in economic policy, which they believed superior to both the rampant individualism of unrestrained capitalism and the severe control of state socialism.[15][16] This was to be achieved by establishing significant government control over business and labour (Italian fascist leader Mussolinicalled his nation’s system "the corporate state").[17][18] No common and concise definition exists for fascism and historians and political scientists disagree on what should be in any such definition.[19]"

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Dear CIGA Hen,

No, I think not. We have been here for at least the last six years.

The better title is "Authoritarian Free Enterprise." It is neither capitalism or socialism, but more like Fascism.

Add the tool of MOPE and it really gets scary!

Regards,
Jim

Bernanke fate in doubt as US Senate opposition swells
CIGA Eric

"Under the watch of Ben Bernanke, the Federal Reserve permitted grossly irresponsible financial activities that led to the worst financial crisis since the Great Depression," Feingold said in a statement.

This has been a crisis in the making for decades. Greed, and its consequences, knows many accomplices. Ever wonder why Bernanke was hand picked for the job? As a student of the depression, the job picked him.

Large Cap Stocks Total Return Index to Long-Term Government Bonds Total Return Index:
clip_image001[1]

All the long-term charts say the same thing, yet the blame is always shouldered by those sitting in the chair during well-after-the-fact realization phase.

Source: news.yahoo.com

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Dear Yra,

Whatever the loophole, you can be sure the banksters will find and utilize it.

What has been proposed is setting a fox to run the fox out of the chicken coop.

Regards,
Jim

Notes From Underground: If We Ran the World
Yra | January 22, 2010 at 10:43 am

If we ran Goldman Sachs, we would file to return to being a partnership which would pre-empt the Obama "Volcker Plan." Then Goldman should partner with Blackstone and/or other private equity firms to ensure that they had a ready pool of capital. This would allow Goldman to lever its theme of being the smartest guys on the street and remove the government from the equation.

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Yen
CIGA Eric

What is the Yen telling us?

As the economic and financial problems worsened in 2008, the Dollar supplanted the Yen as the carry trade currency of choice.

Yen vs S&P 500:
clip_image001

Yen ETF (FXY):
clip_image002

The Yen has just breached the previous swing high on a sign of strength. The dollar might be rallying, it continues to under peform the Yen since 2008. While spin suggests the death of the carry trade, it ignores the signs of life revealed by relative money flows. This means gold, the barbaric relic, will return to form once operation paper tiger loses steam.

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Posted at 5:58 PM (CST) by & filed under General Editorial.

Dear Friends,

Because of paper gold, market games can be played. What cannot be done is for paper gold to produce bullion.

The bullies can attack  the paper gold market in unison, but they cannot create supply in real bullion with the ease of highly leveraged paper.

The pros depend on the under-financed public to stampede under the pressure of fear of loss.

Believe me, I used to run the locals (pros) all over the lot, and on occasion I got significant paybacks.

However, in the final analysis all we did was add noise to a market that went from $40 to $887.50 Real gold (bullion) is in meagre supply.

What that means is algorithms must lose and fundamentals must rule.

All the violent trading resulting in ever increasing volatility in the gold price is but manic noise inside of a major uptrend that will make me look bad for having been too conservative in my year 2000 price objective of $1650.

If you had lived through a top in the gold market, you would know that without any question whatsoever, this is not it.

Ignore those writers who wish to sell a service by feeding on your fear. Gold is going to and through $1224.10 on its way to $1274-$1278. Following that it is on to $1650 and Armstrong and Alf’s numbers.

Respectfully yours,
Jim

Posted at 5:32 PM (CST) by & filed under In The News.

Thought For The Day:

Get ready for bailouts of everything everywhere to levels beyond your wildest expectations.

Only gold can insure you against what is coming down as a product of the glib political decision made today to bury the financials in order to placate voters.

To add to the political panic in Washington is the Supreme Court ruling allowing corporations to spend whatever they want on political elections and lobbyists. This may not have percolated into the heads of the sitting administration, but it means that if unemployment is not overcome this will be a one term administration.

You can be sure the amount of money that is going to be legally spent on making sure certain candidates DO NOT WIN in November is going to be titanic in size.

The administration has acted too fast as a result of their loss in Mass. yesterday. They may well kill the golden goose of the equity market wealth factor the sitting administration has worked so hard to build.

The blowback will expose the true revolution which is job oriented and dire.

Hanging the banksters is an inviting solution, but will not stop the voter rebellion now in progress everywhere.

 

Jim Sinclair’s Commentary

Hanging the banksters sounds inviting, but it will not get this guy’s vote in November 2010.

Today’s actions, a product of the loss of the Mass. election, are ill considered on a cost vs. reward basis by the present administration.

clip_image001

Jim Sinclair’s Commentary

Here is today’s most important event.

The bull market for lobbyists is going into bubbledom. The cost to buy Washington is going into a bull market.

So much for whatever is left of democracy. This looks like Rome to me.

Supreme Court Rejects Campaign Spending Limits
By ADAM LIPTAK
Published: January 21, 2010

WASHINGTON — Sweeping aside a century-old understanding and overruling two important precedents, a bitterly divided Supreme Court on Thursday ruled that the government may not ban political spending by corporations in candidate elections.

The ruling was a vindication, the majority said, of the First Amendment’s most basic free speech principle — that the government has no business regulating political speech. The dissenters said allowing corporate money to flood the political marketplace will corrupt democracy.

The 5-to-4 decision represented a sharp doctrinal shift, and it will have major political and practical consequences. Specialists in campaign finance law said they expected the decision, which also applies to labor unions and other organizations, to reshape the way elections are conducted.

“If the First Amendment has any force,” Justice Anthony M. Kennedy wrote for the majority, which included the four members of its conservative wing, “it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech.”

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Jim Sinclair’s Commentary

A step in the right direction even if they bought it sort of from themselves.

Russia’s Central Bank Boosts Gold Holdings 4.1% in Month
By Paul Abelsky

Jan. 21 (Bloomberg) — Russia’s central bank addded 800,000 troy ounces of gold to its reserves last month, increasing its holdings of the metal in dollar terms to $22.4 billion as of Jan. 1, Bank Rossii said on its Web site. 
The bank’s gold reserves climbed to 20.5 million ounces from 19.7 million the previous month. 
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Jim Sinclair’s Commentary

This they did not buy from themselves.

Russia diversifies into Canadian dollar.
Russia’s central bank announced yesterday that it has begun buying Canadian dollars and securities as part of its efforts to diversify its foreign exchange reserves. Analysts believe other emerging market central banks may follow suit in diversifying away from the U.S. dollar and into other commodity-linked currencies and assets, including the Australian dollar. As of December, Russia’s forex reserves stood at $439B and were evenly split between dollars and euros.

Jim Sinclair’s Commentary

Banging the banks, as attractive as that is, will not win back Mass. Watch the bailout floodgates open.

Housing starts decline.
Housing Starts fell 4% in December to 557K, short of the 573K expected and the 574K registered last month. Permits rose 10.9% to 653K vs. 590K expected and 589K last month.

Producer prices inch up.
The Producer Price Index rose 0.2% in December vs. 0% expected and +1.8% in November. The Core PPI was flat vs. +0.1% expected and +0.5% last month.

Jim Sinclair’s Commentary

Today in Pakistan on its way to the Taliban.

Pakistan snubs US over new Taliban offensive

Pakistan’s army has said it will launch no new offensives on militants in 2010, as the US defence secretary arrived for talks on combating Taliban fighters.

Army spokesman Athar Abbas told the BBC the "overstretched" military had no plans for any fresh anti-militant operations over the next 12 months.

Our correspondent says the comments are a clear snub to Washington.

The US would like Pakistan to expand an offensive against militants launching cross-border attacks in Afghanistan.

Defence Secretary Robert Gates arrived in Pakistan on Thursday for his first visit since US President Barack Obama took office last year.

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Jim Sinclair’s Commentary

The US dollar rally decided upon by money managers at year end is predicated on the resurgence and sustainability of the US economy. That is clearly not the fact of the matter.

At $1.52 the ECB was screaming about the rise in the Euro. Get ready for the same on the other side.

Dollar fundamentals stink. They are not going to improve.

The strength of the US dollar is only the weakness of the euro, signalling nothing for the US economy which shuffles paper as a primary wealth producing industry and manufactures less.

What is reported below is no green shot.

Initial jobless claims unexpectedly rise
New jobless claims unexpectedly rise, more people receive extended benefits
By Christopher S. Rugaber, AP Economics Writer , On Thursday January 21, 2010, 9:12 am EST

WASHINGTON (AP) — The number of newly-laid off workers seeking jobless benefits unexpectedly rose last week, as the economy recovers at a slow and uneven pace.

Layoffs have slowed and the economy began to grow in last year’s third quarter, but companies are reluctant to hire new workers. The unemployment rate is 10 percent and many economists expect it to increase in the coming months.

The Labor Department said Thursday that initial claims for unemployment insurance rose by 36,000 to a seasonally adjusted 482,000. Wall Street economists expected a small drop, according to Thomson Reuters.

The four-week average, which smooths fluctuations, rose for the first time since August, to 448,250.

The weekly claims figure is volatile and it can take time for trends to emerge. A Labor Department analyst said that much of the increase last week was due to administrative backlogs leftover from the winter holidays in the state agencies that process the claims.

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Jim Sinclair’s Commentary

Now thanks to FASB capitulation, all the junk OTC derivative paper held by financial institutions has been marked up to cartoon values. Who needs a trading department anymore?

The mark up of inventories was the cause of the huge gains reported by financial institutions in their trading departments since April of 2009.

Now politics are going to rule.

Politics will not be satisfied by banging on the banks as it is unemployment that is at the heart of Main Street’s suffering. The backfire on politically motivated banging on the banks will be a collapse in the survey indices of expectations for future economic behavior.

You can count on a panic in Washington which will open additional flood gates of stimulation money.

States are already rolling over. Financial institutions are far from healthy, and the downward pressure of markets will reveal that weakness.

Conditions today are not the conditions of 1980, but far weaker systemically.

There is no wiggle room and the so called "Volcker Rule" today has no functional application in the manner some readers assume.

Obama steps up campaign against Wall Street banks
Jan 21, 1:44 PM (ET)
By JIM KUHNHENN

WASHINGTON (AP) – President Barack Obama stepped up his campaign against Wall Street on Thursday with a far-reaching proposal for tougher regulation of the biggest banks.

"We have to get this done," Obama said at the White House. "If these folks want a fight, it’s a fight I’m ready to have."

It was a stern, populist lecture from the president to Wall Street for what he perceives as its abandonment of Main Street. Obama said the government should have the power to limit the size and complexity of large financial institutions as well as their ability to make high-risk trades.

He said it wasn’t appropriate that banks have been able to run these trading operations with the protections afforded to regular banking services.

"We have to enact commonsense reforms that will protect American taxpayers and the American economy from future crises," Obama said. "For, while the financial system is far stronger today than it was one year ago, it’s still operating under the same rules that led to its near-collapse."

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Jim Sinclair’s Commentary

The present administration is wrong if they feel that anti-business moves will placate the unemployment problem in Main Street.

Clearly the financial institutions have brought the pains of hell down on themselves. The rub is that the horse is out of the barn.

The mountain of OTC derivative still sits there with the power of mass financial destruction. More OTC derivatives are being manufactured every day.

Wait until you see the administrations reaction to growing unemployment and the failure of the economy to live up the Christmas hype we were all hammered with.

Bank Failures Should Destroy CEOs, Buffett Tells Fox (Update2)
January 21, 2010, 03:04 PM EST
By Jamie McGee

Jan. 21 (Bloomberg) — President Barack Obama’s proposal to regulate banks should include a requirement that chief executive officers and their spouses forfeit their assets when companies fail, billionaire Warren Buffett said on Fox Business Network.

“There ought to be a huge downside,” said Buffett, whose Berkshire Hathaway Inc. is the largest shareholder in Wells Fargo & Co. “Make it so that the CEO of an institution that fails, or goes to the government and needs help, really gets destroyed himself financially. Why should he come out any better than somebody that gets laid off as an auto worker at General Motors?”

Buffett, who collects a $100,000 salary as Omaha, Nebraska- based Berkshire’s leader, said CEOs must act as the “chief risk officer” of their companies. He has repeatedly criticized bankers for failing to realize that housing prices could fall and said they exacerbated their mistakes by borrowing to increase the size of their failed bets.

“I think you have to change the incentives,” Buffett said on the cable news channel. “It’s nice to have carrots but you need sticks. The idea that some guy is worth $500 million and leaves and only has $50 million, that’s not much of a stick. There ought to be a huge downside.”

Obama today introduced a plan that he said would reduce risk-taking by financial institutions. The proposal is part of an effort to overhaul financial regulations and would specifically prohibit banks from running proprietary trading operations or investing in hedge funds and private equity funds. Banks conduct proprietary trading for their own benefit, not for that of their clients.

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Jim Sinclair’s Commentary

Kramer today has to prove to you that there is panic in Washington. The means applied today seems politically correct in a GLIB manner, but is going to backfire hard.

All the MOPE has been directed at building the wealth effect of the equity market. That is in reality the entire success of this campaign since the FASB, under political pressure, allowed financial institutions to create earnings and asset values by drawing a cartoon named "value to maturity."

It is unemployment in Main Street that is going to drag Washington into the largest bailouts in human history.

The states are going under, and the panic that was created today by the Mass. election yesterday is nothing compared to how the administration will react to the rebellion of Main Street at the polls.

There is only one money on the planet that has no liability attached to it, and therefore only gold insures you against what is coming.

Ignore the noise and adhere to the fundamentals in the dire situation OTC derivatives have created for us. It still has not been addressed here and now.

Stay focused.

Unfunded Benefits Dig States’ $3 Trillion Hole: Orin S. Kramer
Commentary by Orin S. Kramer

Jan. 20 (Bloomberg) — Everyone seems to know the current path of federal fiscal policy is a deathtrap over the long term. What’s peculiar is the relative inattention to the balance sheets of state and local governments.

Hidden behind accounting fictions, the politically unspeakable reality is that public employee pension systems are under-funded by more than $2 trillion. Add more than $1 trillion in unfunded health-care benefits for retired public employees, and state governments face protracted structural deficits ranging from challenging to insurmountable.

Unfunded promises are the equivalent of government debt. The burden of promises made by state governments to their employees — effectively an invisible wealth transfer from future taxpayers to current and prospective public-sector employees — amounts to about one quarter of U.S. gross domestic product. The strength and durability of the current economic recovery are unknowable; that state and local governments, which employ one in nine workers, will be a drag on that recovery is certain.

Ultimately, mathematically unsustainable trends must reverse. As with New York City in the late 1970s, eventually the federal government may get involved in redefining the services state and local governments provide, the benefits paid to public employees and the burdens on taxpayers. States cannot kick the can down the road ad infinitum.

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Jim Sinclair’s Commentary

Here is the sitting administration’s greatest political risk. The administration has gravely misinterpreted the cause of their loss in Mass., a key election that can be considered as important as a national election.

Banging on the banksters, as pleasant as it is to hear, is not going to buy this administration even one vote. It is unemployment and the bankruptcy of states that is going to make this a one term administration.

When that reality, as well as the MOPE of year end US economic bulls sets in, watch the stimulation explosions.

The Suburbanization of Poverty: Trends in Metropolitan America, 2000 to 2008
Elizabeth Kneebone and Emily Garr

January 20, 2010 — An analysis of the location of poverty in America, particularly in the nation’s 95 largest metro areas in 2000, 2007, and 2008 reveals that:

 By 2008, suburbs were home to the largest and fastest-growing poor population in the country. Between 2000 and 2008, suburbs in the country’s largest metro areas saw their poor population grow by 25 percent—almost five times faster than primary cities and well ahead of the growth seen in smaller metro areas and non-metropolitan communities. As a result, by 2008 large suburbs were home to 1.5 million more poor than their primary cities and housed almost one-third of the nation’s poor overall.

 Midwestern cities and suburbs experienced by far the largest poverty rate increases over the decade. Led by increasing poverty in auto manufacturing metro areas—like Grand Rapids and Youngstown—Midwestern city and suburban poverty rates climbed 3.0 and 2.2 percentage points, respectively. At the same time, Northeastern metros—led by New York and Worcester— actually saw poverty rates in their primary cities decline, while collectively their suburbs experienced a slight increase.

 In 2008, 91.6 million people—more than 30 percent of the nation’s population—fell below 200 percent of the federal poverty level. More individuals lived in families with incomes between 100 and 200 percent of poverty line (52.5 million) than below the poverty line (39.1 million) in 2008. Between 2000 and 2008, large suburbs saw the fastest growing low-income populations across community types and the greatest uptick in the share of the population living under 200 percent of poverty.

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Posted at 4:37 PM (CST) by & filed under Jim's Mailbox.

Jim Sinclair’s Commentary

Monty on Russia’s appetite for Canadian Dollars.

Hi Jim,

Check out an article in today’s FT entitled "Moscow buys Canadian dollars and bonds to diversify reserves” by Peter Graham.

A quote from the article states "Analysts said the move could be a sign of increased diversification of emerging markets central bank assets away from the dollar and into investments denominated in other commodity linked currencies, such as the Australian dollar.”

Respectfully yours,

Monty Guild
www.GuildInvestment.com

 

Jim Sinclair’s Commentary

Here is more information from the trenches, the backbone of real America. CIGA Marc is coming to you from the hardware business.

Jim,

In those discussions this afternoon with my vendor’s sales rep., he informed me of a store in Massapequa, Long Island which recently put "going out of business" signs in the window. Another store owner which he also reps. told him "I don’t know what I am going to do." Our customers at my store are very apprehensive, many have either recently laid off workers or have plans to if things do not pick up soon. I was told by a source who is reliable but not confirmed that even Con Edison is looking to lay off workers.

In sum, things are very, very slow. Maybe Wall Street thinks stolen taxpayer funds and a few hundred billion in bonuses can jumpstart the economy but in this neck of the woods I would honestly say that this isn’t even bottom bouncing… We are experiencing another decline of relatively significant magnitude.

I’ve been working night and day trying to turn things around for my little company!  One of my co-workers and myself recently landed two new accounts and are working on a third that we hope to meet with tomorrow but even in spite of aggressive efforts we are off over 30% so far this month.

Your friend,
CIGA Marc

Dear Jim,

I think the states’ financial difficulties is a huge issue that most have not awakened to yet.

They cannot print money like the Feds and have to live within their budgets but all of their revenues are plummeting. Think about it – most of them receive their revenue from a sales tax and a property tax. When consumers cut back and do not spend as much, sales tax revenues decline sharply. When home values plummet due to a glut of foreclosures and surplus units on the market, property tax revenues plummet. And finally, when people lose their jobs or are forced to work part time because they are unable to find full time employment, revenue from state income taxes plummet.

Simply put, they have falling revenues no matter what the source and the same time their spending has increased as unfunded Federal mandates also kick in.

Regards,
Trader Dan

 

Gold Stocks Review
CIGA Eric

China’s cooling off, Greece is toast and so by extension so is EU growth. Spin makes the dollar looks so good in comparison, right? As a result, the perception of a strong dollar, which continues to be faded quietly by strong hands in the futures and option market, stampedes the weak hands out of gold. This, in turn, has forced a retest of support by the gold stocks.

Gold Miners Index ETF (GDM):
clip_image001[1]

The heavy volume during the retest of support implies that lows will likely be probed. Any contraction of volume or force during the retesting process would produce a bullish setup. The next few days will be important.

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Obama to Propose New Rules on Banks’ Size, Trading
CIGA Eric

President Barack Obama will offer proposals to limit financial institutions’ size and trading activities as a way to reduce risk-taking, an administration official said.

Rules? Rules in the form of the reintroduction of banking reform? Anything else is a waste of paper. Greed always finds a way. The repeal of Glass-Steagal in 1999, allowed those granting credit (lending and using of credit (investing) to be under one roof. In other words, those ignoring this lessons of history are destined to repeat it again. This opened to the door to the same abuses that produced the banking reforms in 1933. Either separate commercial and investment banking, or deal with the consequences of greed at some point in the future.

Source: bloomberg.com

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Dear Jim,

The UK is firmly entrenched within the grip of your Formula!

What a mess!

Best,
CIGA BT

Dear BT,

So is the entire Western world.

Regards,
Jim

Government borrowing hits new record for December

With an election only months away, the data is certain to renew the debate at Westminster over the pace at which the UK should cut the budget deficit

Britain borrowed £15.7bn to balance the books last month, the highest December figure on record, as two-and-a-half years of financial crisis and recession took a toll of the public finances.

Despite some signs that the pace of decline may be easing, the government’s net borrowing stood at £120bn in the first nine months of the financial year, almost double the total for the same period in 2008-09.

The Office for National Statistics said the gap between government spending and tax receipts received by HM Revenue and Customs was the highest since recent records began in 1993.

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Dear CIGAs,

If you want to see how the financial media has presented today’s events, go to Bloomberg’s website. At the close of the market day there is not ONE single story about the equity market blowout today. Not one.

Now you know (if you don’t already) what you are dealing with in the financial media. Now you know what MOPE is all about. Today’s crushing of equities simply did not merit mention.

CIGA Anon

Initial jobless claims unexpectedly rise
CIGA Eric

Layoffs have slowed and the economy began to grow in last year’s third quarter, but companies are reluctant to hire new workers. The unemployment rate is 10 percent and many economists expect it to increase in the coming months.

The unemployment rate is 10%? Yeah right. It appears that the calculation and expectation people are one in the same. Expectation unexpected rise today, next week they will unexpectedly fall. Maybe those expectations are horse manure.

A rough road map of the trend is the best one can do. The real unemployment rate is headed much higher. If you need an expectation, expect a jobs bill to be passed very soon.

Average Weekly Initial Claims State Unemployment (AWIC) And YOY Change:
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Average Continuing Claims State Unemployment (AWIC) And YOY Change:
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Source: finance.yahoo.com

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Posted at 9:00 PM (CST) by & filed under In The News.

Dear CIGAs,

Due to the Republican victory in Massachusetts yesterday, the general commentary on F-TV is that the USA looks really good. The MOPE on Greece is going wild.

The dollar is no safe haven and will not guarantee the maintenance of buying power.

The large purchases by non US entities of US Treasuries in the TIC report smells like Limburger cheese. The US dollar economic recovery is nothing more than pixie dust.

To sustain a US economic recovery, there first needs to be an economic recovery to sustain.

Unemployment now becomes an increasing concern for both parties.

The Fed is locked into QE and in all probability is supporting the US Treasury market via the Caymans and other countries internationally.

Buy the dollar and sell gold? You have to be kidding. That is the madness of the crowd and the actions of the Crimex in paper gold

FHA gets tougher to stay solvent.
The Federal Housing Administration announced stricter lending requirements and higher borrowing fees today, a move meant to shore up the agency’s tanking finances and preclude the need for a taxpayer bailout. The FHA’s reserves to cover losses have fallen to $3.6B, or 0.5% of the $685B in loans outstanding. A year ago, its reserves stood at 3%, and Congress requires the FHA to maintain a 2% capital-reserve ratio.

Unemployment likely to persist.
A new report from a group of U.S. mayors suggests that while unemployment will likely peak in most U.S. cities this year, it will take many years before the jobless rate returns to the lows experienced last decade. In some areas, unemployment will stay at or above 10% through 2013, but "what is just as alarming as the double-digit unemployment in many of the nation’s major metro areas is the lethargic rate at which it will recede once the job market turns around."

Housing market still weak.
NAHB’s Housing Market Index dropped 1 point to 15, still the lowest point since June. Current sales conditions fell 1 point to 15, and buyer traffic fell 1 point to 12. Sales expectations for the next six months remained steady at 26. “We stand poised and ready to deliver new homes as soon as our customers are ready" to take advantage of tax credits and conditions, said NAHB Chairman Joe Robson.

Consumer confidence dips.
ABC’s Consumer Comfort Index slipped 2 points to -49, entering "full retreat" mode this month after posting gains in December. Ratings of the national economy held steady at 9% positive, but those who think it’s a good time to buy things slipped a point to 23%, and those rating their personal finances positively slipped a point to 45%.

 

Jim Sinclair’s Commentary

Today was the day of insulting emails, and crying readers.

Confidence in our reader’s mindset looks like the photo below.

I must like pain and suffering to do this every day.

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Jim Sinclair’s Commentary

In this sea of lies, MOPE and convoluted news the real figures sustain our mindset.

The report should be read.

- Annual PPI Inflation Hits 4.4% 
- Housing Starts Keep Bottom-Bouncing 
- Strong 4th Quarter GDP Report Would Set Base for Double-Dip Downturn

"No. 273:  December PPI, Housing Starts, GDP Outlook "
By subscription: http://www.shadowstats.com/

Jim Sinclair’s Commentary

It will be seen that the feeding frenzy at the bonus begging bowl was the last opportunity to dip at the creative accounting earnings well.

Bank of America sees $194m loss

Wall Street giant Bank of America has reported a net loss of $194m (£120m) in the last three months of 2009.

That compared with a loss of $1.8bn in the same period a year earlier, as the bank said it had taken steps to strengthen its balance sheet.

It added that it had repaid the $45bn government bail-out money it had received during the financial crisis.

For the whole of 2009, the bank made a net profit of $6.3bn, an increase on the $4bn profit it made in 2008.

Earlier this week, fellow US bank JP Morgan Chase reported a profit of $3.3bn, while Citigroup said it made a $7.6bn loss in the final quarter.

"While it’s disappointing to report a loss for the fourth quarter, there were a number of important accomplishments worth noting," said chief executive Brian Moynihan.

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Jim Sinclair’s Commentary

All is well for the dollar? Like hell it is!

US housing starts unexpectedly fall in Dec

WASHINGTON, Jan 20 (Reuters) – New U.S. housing starts unexpectedly fell in December, pulled down by a drop in construction activity for single-family dwellings, a government report showed on Wednesday.

The Commerce Department said housing starts fell 4 percent to a seasonally adjusted annual rate of 557,000 units. Analysts polled by Reuters had expected housing starts to rise to 580,000 units. November’s housing starts were revised upwards to 580,000 units from the previously reported 574,000 units. The drop in housing starts was likely the result of unusually cold weather last month.

Groundbreaking activity dropped a record 38.8 percent to an all-time low of 553,000 units for the whole of 2009.

Starts for single-family homes fell 6.9 percent last month to an annual rate of 456,000 units after rising 4.0 percent in November. Groundbreaking for the volatile multifamily segment rose 12.2 percent to a 101,000 unit annual pace, after surging 69.8 percent in November.

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