Posted at 11:03 AM (CST) by & filed under General Editorial.

All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved.
–Sun Tzu

Dear CIGAs,

Reported Chinese actions to unilaterally cancel OTC derivative loss debts held by state corporations whereby they purchased hedge contracts written by major American OTC derivative manufacturers and distributors is legally a unilateral novation. A novation declares an item to be invalid. Invalid means not valid. A contract which is not valid infers a form of a fraudulent contract.

Actions by the Chinese tend to follow and can be understood by learning the tenets of the teachings of Sun Tzu.

Had the West acted exactly this way rather than financing them to pay the winners when the hedge fund, Long-Term Capital, failed on OTC derivatives, there would have been financial problems but this event today would only be a modest recession and not a catastrophic depression.

MOPE has blacked this event out while titanic pressure is being brought on the US to fall into line and pay off the winners in New York.

What happened here will pave the road of the future.

This is the most important economic event since the fall or shove into bankruptcy of Lehman.

Few understand.

Posted at 11:05 PM (CST) by & filed under Jim's Mailbox.

Jim,

From JSMineset:

"Think it out. This is a stop loss for the Chinese."

This could be a salvo in economic warfare. It could topple the whole quadrillion dollar mess, and…?!

CIGA HK

Dear HK,

Yes, exactly, but the precious few realize it.

News on it is MOPE denial, and after that there is almost a media blackout.

Those blogs that have written on it don’t understand what they are writing about.

This potential nuclear act is the proper reaction that should have been the West’s when long term capital, the hedge fund, failed.

Understanding the nuclear potential of unilaterally cancelling OTC derivatives by declaring them invalid is hidden in its complexity.

Regards,
Jim

Jim,

With some zealots in the Obama administration seeking to curb imports of so-called "dirty oil" from Canada’s tar sands, it would appear that the Chinese are willing to take as much oil as Canada can produce. And I’d bet they will have no problem getting this transaction approved by the Canadian government. Indeed, this may just be the beginning.

Most Americans think the Saudis are the largest supplier of oil to the U.S. when in fact it’s their often maligned, politically secure, northern neighbour.

Politicians are often accused of keeping voters in the dark; with the current administration’s emphasis on alternate energy sources, the end result might be a lot more real (and darker) than people think. New York by candlelight? Now wouldn’t that be a sight to see!

David D

PetroChina Spends $1.7 Billion on First Canada Oil-Sands Stakes
By John Duce and Gene Laverty

Sept. 1 (Bloomberg) — PetroChina Co., China’s largest oil company, has bought its first stake in a Canadian oil sands project for C$1.9 billion ($1.7 billion) as the nation increases efforts to secure resources overseas.

PetroChina will take 60 percent stakes in Athabasca Oil Sands Corp.’s MacKay River and Dover oil-sands, according to a statement from the Canadian company yesterday. The investment may be PetroChina’s biggest acquisition inNorth America, spokesman Mao Zefeng said today.

China has spent more than $13 billion on overseas energy assets since December and PetroChina officials said last week the company plans further purchases. Oil sands resources are harder to exploit than conventional fields and the deal underscores China’s determination to snare reserves, said Gordon Kwan, an energy analyst at Mirae Asset Securities in Hong Kong.

“The easy lucrative oil projects are gone and what’s left are the more difficult challenging projects for the oil firms to tackle,” Kwan said.

PetroChina shares fell 2.8 percent to HK$8.56 in Hong Kong yesterday while the Hang Seng Index declined 1.9 percent. The company’s market capitalization fell behind Exxon Mobil Corp. yesterday as the U.S. company regained its rank as the world’s most valuable company after shares in China fell.

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Dear Jim,

The economic strategy you have aptly dubbed Manipulation Of Perception Economics (MOPE) is moving full speed ahead. The more common forms we see are "spin" that turns bad news into good and "green shoots"-type projections timed specifically to divert our attention away from troubling statistics or developments.

There is another more subtle tool I would call "setting the agenda" that seems to be cropping up more and more frequently. The idea is that if you can get people focused on a particular debate, you can steer them away from looking at other issues that are more relevant and more worrisome.

I believe that the recent prolonged debate over whether China is "trapped" by its large US dollar holdings is an example of this tactic in practice. The truth is that China is by no means the biggest holder of US dollars; it is simply one of the more identifiable holders. The last thing the Fed and US Treasury want people to focus on is who else is holding huge dollar positions and what that means to the Fed’s ability to drain liquidity from the system in the future.

None of the trillions of dollars that disappeared from the financial sector in recent years has gone away. The last decade saw the transformation of the banking and investment community into the world’s largest casino. Gambling is a zero sum game. What one player loses goes straight into the hands of the winner.

The Fed and Treasury have been busy creating trillions of new dollars to (1) make sure all the losers can pay off the winners and (2) allow the financial institutions to recapitalize so the banking system doesn’t collapse. We know there is a group of winners out there sitting on trillions and trillions of dollars. We just don’t know who they are.

It’s safe to say that at this point, these "winners" are engaged in a high stakes game of liar’s poker with each other. None of them wants to see their dollar holdings destroyed, but even more to the point, none of them wants to be the last one at the table holding onto their dollars when the other players start creeping to the exits.

It’s also safe to assume that every one of these major players is in the process of doing what we see China doing, namely, diversifying and hedging their dollar holdings, and that none is eager to increase its dollar holdings. That is why the Fed has been forced to buy up the lion’s share of US Treasuries and Agency debt.

This points to another major topic of discussion in which the MOPEers are working overtime to control the agenda. The debate over whether inflation can be contained has been cast in terms of whether the Fed will be able to drain liquidity from the system once business conditions improve. This serves to steer people away from thinking about the more pertinent concern that neither the Fed nor the Treasury can make the winners give back the money they took from the banks, municipalities, pension funds, etc.

All of the major dollar holders are now in the same predicament. No matter what they do the value of their US dollar holdings is being diluted. This is because there is no way on earth the US Government can stop creating trillions of new dollars each year. It is going to be cranking out this money to keep any other big financial player from folding, keep the FDIC alive, keep big corporations alive, keep huge pension funds from imploding and fight un-winnable wars on at least two different fronts.

Inflation (most likely hyperinflation) will be forced upon us as the major dollar holders get tired of seeing their holdings steadily diluted and start tripping over each other grabbing for hard assets. Things will get very ugly fast as the all the major players start heading for the exits at the same time. This will happen in the context of poor business conditions domestically, just as it has throughout history in every major hyper inflationary event.

These are lessons that are being taught daily and repeatedly by the contributors to this site. CIGAs are not going to see them discussed anywhere else. The MOPErs are firmly in control of the agenda. Few see through the spin and even fewer call the official spokespersons on their ridiculously over-optimistic projections.

I’d like to encourage my fellow CIGAs to stay focused on the lessons being taught here and spend less time listening to the disinformation that is being so freely disseminated through official channels. There is only so much time in the day each of us can dedicate to navigating our way through these uncharted waters. It is difficult to listen to the constant din of carefully choreographed disinformation and not be affected by it. Our time is much better spent focusing on the issues that matter and planning our lives accordingly.

Respectfully yours,
CIGA Richard B.

Posted at 11:01 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

The FDIC is broke in terms of present capital and even just the 416 troubled banks.
The FDIC will approach the US Treasury within ten weeks for additional funding.
The FDIC must, as their funds are falling towards zero.
The FDIC will be restocked with funds by the US Treasury.
The FDIC then becomes another form of QE.
The Chinese are publicly opposed to a continued QE dollar program.

This adds more fuel to the fire that this coming winter will be extremely difficult for the US dollar.

The Coming Deposit Insurance Bailout
Another lesson that federal guarantees aren’t free.

Americans are about to re-learn that bank deposit insurance isn’t free, even as Washington is doing its best to delay the coming bailout. The banking system and the federal fisc would both be better off in the long run if the political class owned up to the reality.

We’re referring to the federal deposit insurance fund, which has been shrinking faster than reservoirs in the California drought. The Federal Deposit Insurance Corp. reported late last week that the fund that insures some $4.5 trillion in U.S. bank deposits fell to $10.4 billion at the end of June, as the list of failing banks continues to grow. The fund was $45.2 billion a year ago, when regulators told us all was well and there was no need to take precautions to shore up the fund.

The FDIC has since had to buttress the fund with a $5.6 billion special levy on top of the regular fees that banks already pay for the federal guarantee. This has further drained bank capital, even as regulators say the banking system desperately needs more capital. Everyone now assumes the FDIC will hit banks with yet another special insurance fee in anticipation of even more bank losses. The feds would rather execute this bizarre dodge of weakening the same banks they claim must get stronger rather than admit that they’ll have to tap the taxpayers who are the ultimate deposit insurers.

It isn’t as if regulators don’t understand the problem. Earlier this year they quietly asked Congress to provide up to $500 billion in Treasury loans to repay depositors. The FDIC can draw up to $100 billion merely by asking, while the rest requires Treasury approval. The request was made on the political QT because, amid the uproar over TARP and bonuses, no one in Congress or the Obama Administration wanted to admit they’d need another bailout.

But this subterfuge can’t last. Eighty-four banks have already failed this year, and many more are headed in that direction. The FDIC said it had 416 banks on its problem list at the end of June, up from 305 only three months earlier. The total assets of banks on the problem list was nearly $300 billion, and more of these assets are turning bad faster than banks can put aside reserves to account for them. The commercial real-estate debacle is still playing out at thousands of banks, even as the overall economy bottoms out and begins to recover.

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Jim Sinclair’s Commentary

The biggest news out there is that the Chinese state has no intention of providing Federal funds to pay into their losing OTC derivative state entities. This would allow them to pay these same funds to the OTC derivative winners in New York.

The cover story for MOPE is:

Wall St tumbles on worry about more bank failures
By Rodrigo Campos

NEW YORK, Sept 1 (Reuters) – U.S. stocks sank on Tuesday on increasing worries that there could be more bank failures and concerns that equity prices may have run ahead of the economic recovery.

A sharp drop in bank stocks in late morning trading pulled the Dow average.DJI and the broad Standard & Poor’s 500 .SPX down almost 2 percent, with investors fearing a revival of balance-sheet trouble in the financial sector.

"The chatter from (some) hedge funds is that there is a bank default", said Jon Najarian, a founder of Web information site optionmonster.com.

The KBW bank index .BKX slumped 3.8 percent, with shares of Citigroup (C.N), down 7.2 percent at $4.64, among the top drags.

Stocks had been up earlier after data from the Institute for Supply Management showed U.S. manufacturing expanded in August for the first time since January 2008. For details see [ID:nN01376541].

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Jim Sinclair’s Commentary

This is the beginning of major problems for cities all over North America. It is part and parcel of the Formula of 2006.

U.S. Cities’ Woes to Worsen as Taxes Trail Pace of Recovery
By William Selway

Sept. 1 (Bloomberg) — U.S. city officials say they expect to face further financial strains because tax collections won’t recover until after the economy emerges from the deepest recession since the Great Depression, a national survey found.

Eighty-eight percent of city finance officers said they are less able to cover the cost of running their governments than a year ago, up from 64 percent a year earlier, according to a survey of 379 cities by the National League of Cities between April and June. It was the most negative assessment since the survey began in 1986. Eighty-nine percent said the next budget year would be even worse.

The survey points to increasing pressure on municipal officials even as the economy shows signs of recovering from the recession that began in December 2007. While property values have plunged since 2006, with home prices down 15.4 percent in June from the year before, according to the S&P/Case-Shiller home-price index, it can take years for that decline to be fully reflected in real-estate taxes. They provide about 32 percent of municipal revenue, according to the city group. Sales taxes can also drop until months after consumers start spending.

“Since city fiscal conditions tend to lag behind national economic conditions, the effects of a depressed real estate market, low levels of consumer confidence and high levels of unemployment will likely play out in cities well into future years,” according to the National League of Cities.

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Jim Sinclair’s Commentary

It looks like Dr. Boom is going back into business.

Pakistan nuke scientist says limits on him lifted

ISLAMABAD — Pakistani nuclear scientist Abdul Qadeer Khan, who has admitted leaking nuclear secrets to Iran, North Korea and Libya, said Tuesday restrictions on his movements by the government had been lifted.

Asked if reports in local newspapers that restrictions on his movements had been lifted, Khan told AFP: "By the Grace of Allah, yes."

In February, a Pakistani court declared Khan a free man, five years after the reputed father of Pakistan’s nuclear bomb was effectively put under house arrest for operating a proliferation network.

Last Friday, the 72-year-old Khan complained to a high court that his movements were still being restricted by the government’s security arrangements on his behalf. The court ordered the government to respond to Khan’s claim on September 4.

Local media have quoted Khan as saying that these restrictions have now been withdrawn.

"The reports that you have read in newspapers are correct," Khan told AFP, adding that he could not elaborate because the court had barred him from giving interviews to foreign media. He was, however, free to speak to local press.

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Jim Sinclair’s Commentary

The statement is that what OTC derivatives have not done to financial entities, bad business, and litigation will.

Here comes bad business.

Commercial Mortgage Defaults Jump for U.S. Banks (Update2)
By Hui-yong Yu

Aug. 31 (Bloomberg) — The default rate on commercial mortgages held by U.S. banks more than doubled in the second quarter from a year earlier amid falling rents and occupancies for malls, office buildings and warehouses.

Loans that were 90 days or more past due climbed to 2.88 percent of outstanding balances in the second quarter, from 1.18 percent a year earlier, according to New York-based property research firm Real Estate Econometrics LLC. Defaults increased from 2.25 percent in the first quarter.

“A delinquency may have resolved itself two years ago,” said Real Estate Econometrics President and Chief Economist Sam Chandan. “Today, even one missed payment may be more indicative of an underlying problem, so banks have to be very proactive in addressing the issue.”

Banks held $1.087 trillion of commercial property loans in the quarter, up from $1.077 trillion in the previous three months. That’s almost 15 percent of all loans and leases held by banks, Real Estate Econometrics said. Defaults are rising both for lenders who hold commercial mortgages and for bondholders in the $700 billion U.S. market for securities backed by commercial mortgages.

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Jim Sinclair’s Commentary

Short term action in an attempt to solve a long term problem while dancing with the devil is bad business.

I wonder what the lender took for collateral?

Budget Crisis: City Takes Out $275M Loan
Ben Simmoneau

Philadelphia is taking out a short-term loan to help with cash flow as Pennsylvania’s budget crisis continues.

Mayor Michael Nutter announced Tuesday the city will take out the $275 million loan from JP Morgan Chase. The loan comes with a 3 percent interest rate if paid in full by November 30. On December 1, the interest rate increases to 8 percent.

Mayor Nutter expects the city will re-finance the loan at a lower interest rate in the public markets – once Pennsylvania’s budget crisis is solved.

Mayor Nutter also said Tuesday that by the end of next week, he will submit a new pension plan to the public agency that oversees the city’s pensions. Officials in Harrisburg are forcing the mayor to take that step.

Last week, the State Senate signed off on the mayor’s plan to raise the city sales tax by a penny and delay about $150 million worth of pension payments this year – but only if the city cuts the costs of its pensions.

Going forward, the city must freeze pension benefits for current workers and reduce pension costs for new workers by 20 percent. The mayor has said a new pension plan might include some type of 401(k) option to cut costs.

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Jim Sinclair’s Commentary

This is the classic 1932 repeat.

Zombies dance while leading the financial group recovery.

Citigroup Is "Queen Of The Zombie Dance Party": Institutional Risk Analyst
The Huffington Post   |  Ryan McCarthy 
First Posted: 09- 1-09 04:24 PM   |   Updated: 09- 1-09 05:43 PM

Yet another Wall Street analyst has hammered Citigroup, despite a recent surge in the bank’s stock price. Shares in Citigroup have shot up more than 60 percent in the last month.

Citi’s recent rally, however, didn’t prevent this macabre declaration today from Institutional Risk Analyst (IRA): "In Q2 2009, the queen of the zombie dance party remains Citigroup." Just last week, as NYT’s DealBook pointed out, David Trone of Fox-Pitt Kelton predicted that Citi would see an additional $68.6 billion in loan losses through 2010. (Note: Citi’s shares took a big dive today.)

Calling the bank "one of the zombie girls still rocking out at the House Bernanke dance party" and saying Citi was "halfway" in the grave," IRA questions why any serious money manager – let alone a Main Street investor – would put their money into Citigroup when so many questions remain about the bank’s toxic assets.

According to IRA’s Bank Monitor, which examines the health of individual banks, Citigroup is one of 2,256 banks to receive a grade of "F" in the second quarter of this year. In case you needed an explanation of what an "F" signifies, IRA describes this grade as: "Stress levels at the extreme range above industry average. At this degree of stress, one or more of the key elements of the business model has reached failure mode. What concerns exist are probably already public."

Worse, IRA compares Citigroup to some other well-known wards of the state:

"As we told subscribers to the IRA Advisory Service on Monday, credit losses at C could require additional injections of capital a la Fannie Mae and Freddie Mac, even with the flow if subsidies that has increased C revenue greatly from 2008 run rates."

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Jim Sinclair’s Commentary

Credit Default Derivative called Insured Municipal Bonds are not worth the paper they are written on. This should produce some interesting events and many disappointments.

Florida’s Bust Propels Muni Default Spike: Chart of the Day 
By Joe Mysak

Sept. 1 (Bloomberg) — No other state comes close to Florida in defaulted municipal bonds.

The CHART OF THE DAY shows the number of bond issues that have gone into default over the past decade and Florida’s contribution to the total, according to the Distressed Debt Securities newsletter of Miami Lakes, Florida. Of the 126 bonds that are in default in 2009, 70 were sold in Florida.

Blame it on the collapse of the real estate market in general and, in particular, on Community Development Districts, which sell bonds to pay for infrastructure to support new real estate developments. Florida has 600 such districts, and 105 have gone into default on a total of $3.2 billion in bonds.

Asked how the so-called dirt district defaults in Florida compared with similar meltdowns in Colorado in the 1980s, Texas in the late 1980s and early 1990s and California in the 1990s, Richard Lehmann, publisher of the newsletter, said, “It’s worse than all three combined.” He also observed that some California defaults are still being worked out a decade after they occurred. Lehmann has launched a Web site devoted to this, http://www.floridacddreport.com.

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Jim Sinclair’s Commentary

There is no safe haven with legs in the US dollar as it is the currency most wanted to diversify from in a planetary sense. Use common sense.

Dollar Is Funny Money in Push for World Currency
Commentary by Kevin Hassett

Aug. 31 (Bloomberg) — Like the Chinese, the folks at Disney World peg their currency to the dollar. Hand them $1 U.S. and you receive one Disney dollar, complete with a picture of Mickey Mouse or his friends, plus the signature of Disney’s official treasurer, Scrooge McDuck.

That transaction now seems superfluous. The U.S. dollar is rapidly transforming into a Mickey Mouse currency. This has led to a rising call for the creation of an alternative to the dollar in the form of a new world currency. It would be an enormous mistake to discount these calls as a sideshow. The odds of a world currency emerging have never been higher.

The calls are coming from many corners. Nobel Prize-winning economist Joseph Stiglitz chaired a United Nations panel that recommended the creation of a global reserve currency. Zhou Xiaochuan, governor of the People’s Bank of China, proposed that the International Monetary Fund take over the global leadership role traditionally ceded to the U.S. And Russian President Dmitry Medvedev handed out minted coin samples of a new world currency at the recent Group of Eight meeting in Italy.

These calls are worth paying attention to for a number of reasons. The arguments for a world currency are much better than you might think. An alternative to the dollar clearly has a promising market that can develop even if it is opposed by the U.S. And the idea of a world currency is most attractive to those who devoutly believe in multilateral institutions and the Canon of Lord Keynes — beliefs that are hardly in short supply in Barack Obama’s White House.

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Jim Sinclair’s Commentary

Any consideration of the US dollar as a "Safe Haven," violates all semblances of common sense.

Dollar destined to be second class currency in world’s largest banana republic
September 1, 2009
Analysis by:  Michael Lynch

Summary

Professor of History Kennedy notes debate about the reserve status of the U.S. Dollar. The issue arose at the G-20 meeting  in London in April and again in Yekaterinburg two months later when Brazil, Russia, China and India discussed shifting out of the dollar. Italian scholar Antonio Mosconi wrote in " The World Supremacy of the Dollar at the Rendering (1917-2008)" that the dollar is the currency of the "empire of debt" and as such, is in its last convulsion. This crisis is not like the others.

Analysis

The mainspring of the American commercial and industrial system is broken. If it is not repaired, and soon, the general economy will continue to spiral down into lethargy. This will inevitably lead  to political consequences now only dimly foreseen. The town hall demonstrations during the congressional summer recess were subtle indications that Americans are beginning to realize that the functionaries cannot cope with the gathering storm. The eye of this awesome turbulence now looming well above the horizon is the ruined U.S. Treasury. Plans to run the national debt up to $9 billion by 2019 have catastrophic dimensions. With a currency that has no future, the political game cannot long go on. The only exit strategy remaining now is default which the government is reluctant to embrace (to say the least). The current financial philosophy  leads to eventual chaos. Default, of course, has its own peculiar consequences. The greatest one is that the U.S.A. immediately loses superpower status and is reduced to the role of banana republic. Little consolation can derive from the fact that it will be the world’s largest  such state. Without the ability to finance anything, American foreign policy will become fiction, domestic policy will amount to oratory without substance. The American people will quickly tire of the moribund federal government and replace it with one that can be more easily controlled. It is difficult to say exactly what form the new government might be. Perhaps a unicameral legislature composed of the several governors with a governor-in-chief of brief and limited power. The citizenry would formally or tacitly bring into being their powers of political assassination, popular political tools in all of the BRIC countries. But however the political questions are resolved, the fundamental economic, commercial and industrial issues would remain. Obviously in a world where foreign currencies are supreme, implications for the laboring classes are severe. A possibility is to forgo the concept of "internationalization" and revert to a closed system where there are neither imports nor exports. The citizens make an economy based upon what can be produced domestically. Implications for transportation, energy and industry are obvious. If the American system continues to drift, as it seems certain to do, then Brazil, Russia, India and  China, and others will take whatever steps are necessary to pull their own systems back from the abyss (which they are now clearly doing). From this will emerge an international system of trade with the U.S.A. largely excluded unless gold is used to pay for transactions. When the gold is gone, international transactions cease. None of the above suggests that the world is coming to an end. The Soviet Union, for much of its 70 year tenure was not  a world power. Modern Russia is still a work-in-progress. China, only now, is coming into its own. India has unrealized potential. Brazil, with great oil potential promises to be a power for years. The European Union will prosper. Life will go on, even for Americans, but their standards of living will decrease as the dollar fades.

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Jim Sinclair’s Commentary

You think GM has finally realized what has happened to the world?

GM power has shifted to China
Foreign operations report to Shanghai
BY MARCIN SZCZEPANSKI and TIM HIGGINS

SHANGHAI — Largely overlooked in last month’s sweeping management reorganization of the new post-bankruptcy General Motors Co. was a recentering of power to Shanghai.

Nick Reilly went from overseeing GM’s Asia operations based in Shanghai to overseeing all of the automaker’s operations outside of North America, except for Opel — ending decades of bureaucratic silos that had carved up the globe into regional divisions.

So while GM’s Canada and Mexico operations report through the United States, most of the rest of the world reports through China.

"It should signal to everybody that certainly North America is going to be important to righting the ship, but basically the bread is going to be buttered out of Asia," said Michael Robinet, vice president of global vehicle forecasts at CSM Worldwide. "GM fully understands that, and that’s the reason why they put more decision-making capability out of Asia for their future fortunes."

As GM looks to sell off majority control of its Opel division in Europe, the Detroit automaker will likely draw on lessons from its China operations, where it is partnered with Shanghai Automotive Industry Corp. and Wuling Motors, for managing its new relationship.

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Jim Sinclair’s Commentary

Libor measures many things, one of which is simple demand for dollars. That one leads us to think which is worse, a high or a very low Libor rate.

Key US Dollar Libor Drops To Record Low
By Keith Jenkins
SEPTEMBER 1, 2009, 7:08 A.M. ET

LONDON (Dow Jones)–The cost of borrowing longer-term U.S. dollars in the London interbank market continued to fall Tuesday as trading resumed after the U.K. Bank Holiday weekend, with the key three-month rate marking its lowest level since the British Bankers’ Association introduced its Libor fixings back in 1986.

Data from the BBA showed three-month dollar Libor, seen as an important gauge of the effectiveness of the Federal Reserve’s monetary policy, fell to 0.33438% from Friday’s 0.3475%.

The three-month rate reached 4.81875% on Oct. 10, when interbank market tensions peaked.

Meanwhile, overnight U.S. dollar Libor fixed unchanged at 0.22938%, holding below the upper end of the Federal Reserve’s Fed funds target range of zero-to-0.25%.

Three-month U.S. dollar Libor is expected to remain at low levels, according to valuations in eurodollar futures contracts.

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Jim Sinclair’s Commentary

Here is a repeat of 1932.

When you’re desperate, even bad news is good
A glut of positive economic data this summer doesn’t mean things are necessarily better – just not as bad as last time the data were collected. Maybe that’s good enough
Steve Ladurantaye
Globe and Mail Update Last updated on Tuesday, Sep. 01, 2009 02:32PM EDT

When you’ve spent the last year eating canned Spam, a bologna sandwich starts to look pretty good. So it goes with economic data, which are starting to look a whole lot better after a year of catastrophic readings.

“A lot of the numbers have been flattered by very easy comparisons,” said Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc. “What we’ve gone through in the last year makes any comparison fraught with difficulties.”

As the economy teetered in February, U.S. Federal Reserve chairman Ben Bernanke warned of the destructive powers of the “adverse feeback loop, in which weakening economic and financial conditions become mutually reinforcing.”

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Jim Sinclair’s Commentary

Do you remember how silly this sounded in 2006 when I reminded you that central banks sold gold in 1968 to 1975, then slowed down sales and eventually turned into buyers? Also, remember how meaningless IMF sales were to the bears then? It is the same now.

It amazes me how many self-proclaimed gold experts were in diapers then.

Turning point for gold as Central Banks become buyers
With the possibility of Central Banks becoming net gold buyers and the speculation that the IMF gold may be sold "off market" gold analyst Jeff Nichols remains bullish on the precious metal’s prospects
.
Author: Lawrence Williams
Posted:  Tuesday , 01 Sep 2009

In his latest deliberation on the gold market, specialist gold analyst Jeff Nichols believes that gold has reached a turning point with purchases from official sources – Central Banks and sovereign wealth funds – perhaps outweighing sales as attitudes to the metal as a reserve asset become much more positive.

In particular Nichols points to China and Russia as two key nations with relatively low proportions of gold in their reserves as likely to be net buyers in the future – even if only soaking up gold from their own domestic production which otherwise would come on to the market.  China announced earlier this year, for example, that it had moved 454 tonnes of gold into its reserves since 2003 – but still has only about 1.5% of its assets in gold.  China’s accounting system is complex.  The gold is, apparently bought by one government entity, but need not show up in its reserve statements until an internal transfer has been made into reserves – or so it says.  This in effect means that its real gold reserve position is far from transparent and there is certainly a view that China is continuing to buy gold from domestic sources – Nichols surmises at a rate of around 75 tonnes a year, but again this has not shown in official reserve figures as yet and would only do so when it suits China to announce changes in holdings.

Russia too, with only around 2% of its assets in gold, has been making purchases from domestic output – and with prime Minister Putin stating publicly that the country should hold 10% of its reserve assets in gold there is considerable scope for ongoing purchases.  According to Nichols, some reports suggest the country has added some 40 to 50 tons to its official reserves so far this year while other reports put purchases this year at 90 to 100 tons.

The key, though, has to be the attitude of the European Central Banks, which have been selling significant quantities of gold onto the market over the past ten years.  The U.K. is the prime example of this when then Chancellor of the Exchequer, Gordon Brown, who has, despite this financial disaster for country, built up a decidedly unwarranted reputation for financial prudence, sold half the U.K.’s gold reserves right at the bottom of the market, costing the country some several billions of dollars by some estimates.

Overall, the European banks are said by Nichols to hold on average about 55% of their reserve assets in gold – way above while Asian nations only about 1.5 – 2% – hence the big scope for purchase increases in the areas where economic growth has the highest potential. Be this as it may, Nichols reckons European Central Bankers’ attitudes are changing towards gold as an asset with the recent sharp fall in gold sales from official sources representing a renewed respect for gold as a reserve asset and reliable store of value.

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Jim Sinclair’s Commentary

No less than once a week some form of gold scam is sent in from a hapless reader.

It is not limited to gold. Now it is a trillion dollars worth of some currency that a reader is an agent of for sale or purchase.

When will people learn that big money does not just happen to select you or I as their agent?

Mormons Become Victims in $50 Million Scam to Sell Gold Bullion
By James Sterngold

Sept. 1 (Bloomberg) — Henry Jones delivered the good news in a conference call with Tri Energy Inc.’s investors: The gold deal the company had been working on for years was about to pay off.

Jones, 55, a record producer in Marina del Rey, California, and his two partners had raised more than $50 million from 735 investors, which they said they were using to broker the sale to Arab buyers of 20,000 tons of gold owned by a group of Israelis. They promised to triple investors’ money — if only Tri Energy could overcome some last-minute glitches.

All the company needed to close the deal, Jones said on the Dec. 20, 2004, conference call, taped by one of the participants, was a “safe-passage letter” that would cost $450,000. A few days later, on another call, he said Tri Energy had to come up with $100,000 to open a “commission account.” Then, on Jan. 15, 2005, a new request: The bank handling the deal wanted $125,000 to conduct an audit.

Like those caught up in other get-rich scams — from Bernard Madoff’s $65 billion Ponzi scheme, which initially snared wealthy Jews, to an alleged $4.4 million fraud aimed at deaf people — Tri Energy’s investors had something in common. Many were Mormons and born-again Christians who shared dreams and prayers on nightly conference calls. They vowed to use the profits for charitable works and kept raising funds, at times taking out second mortgages, draining retirement accounts and recruiting relatives.

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Jim Sinclair’s Commentary

As discussed, China’s next major economic thrust is to provide high tech products and services at lower than now competitive cost.

In doing so they will consume their own materials, making exports limited.

China plans while the West only reacts.

World faces hi-tech crunch as China eyes ban on rare metal exports
Beijing is drawing up plans to prohibit or restrict exports of rare earth metals that are produced only in China and play a vital role in cutting edge technology, from hybrid cars and catalytic converters, to superconductors, and precision-guided weapons.
By Ambrose Evans-Pritchard
Published: 5:58PM BST 24 Aug 2009

A draft report by China’s Ministry of Industry and Information Technology has called for a total ban on foreign shipments of terbium, dysprosium, yttrium, thulium, and lutetium. Other metals such as neodymium, europium, cerium, and lanthanum will be restricted to a combined export quota of 35,000 tonnes a year, far below global needs.

China mines over 95pc of the world’s rare earth minerals, mostly in Inner Mongolia. The move to hoard reserves is the clearest sign to date that the global struggle for diminishing resources is shifting into a new phase. Countries may find it hard to obtain key materials at any price.

Alistair Stephens, from Australia’s rare metals group Arafura, said his contacts in China had been shown a copy of the draft — `Rare Earths Industry Devlopment Plan 2009-2015’. Any decision will be made by China’s State Council.

“This isn’t about the China holding the world to ransom. They are saying we need these resources to develop our own economy and achieve energy efficiency, so go find your own supplies”, he said.

Mr Stephens said China had put global competitors out of business in the early 1990s by flooding the market, leading to the closure of the biggest US rare earth mine at Mountain Pass in California – now being revived by Molycorp Minerals.

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Jim Sinclair’s Commentary

Only about 1/3 of auto dealers have had their paperwork completed by the government on Cash for Clunkers while red tape frustrates the government assistance for mortgage foreclosures. These are the guys who will run health care, GM and other nationalized entities.

Homeowners frustrated by mortgage assistance program
updated 14 minutes ago
By Jessica Yellin

(CNN) — The Obama administration’s Making Home Affordable program was designed to help homeowners like Mark Kollar and Angela Baca-Kollar keep their homes.

When the recession hit, the Arizona couple’s income plummeted. They tried everything they could think of to hold on to their house: They drained their savings account, sold their 401(k), changed jobs.

It wasn’t enough, and foreclosure is set to begin in a week.

The Kollars thought they had one last hope: the Making Home Affordable program, which should have reduced their monthly mortgage to affordable payments. In theory, it’d be a win-win: The Kollars and their two children keep their home, and the nation avoids one more foreclosure.

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Jim Sinclair’s Commentary

Fat chance, just like in Iran.

Afghan tribal leaders call for Karzai to quit after detailing election fraud
September 1, 2009

In a crowded conference hall in Kabul, hundreds of angry tribal elders and local officials from southern Afghanistan gathered today to protest against what they dubbed massive electoral fraud that robbed entire districts of their votes and allocated them to the incumbent president, Hamid Karzai.

In a string of searing testimonies, community leaders told of how villages that had been too terrified to vote because of Taleban threats, of mysteriously produced full ballot boxes, and with most of the votes cast for Mr Karzai, often by his own men or tribal leaders loyal to him.

Hamidullah Tokhy, a tribal elder from Kandahar province in the south, whose governor is Mr Karzai’s brother, said: “How is it that in a district which a governor can only visit once every two years, where it’s too dangerous for the police to go, where even Nato can’t fly, how come there were 20,000 votes collected?”

The meeting was chaired by Abdullah Abdullah, the main rival to Mr Karzai in the June 20 elections, which an increasing number of Western observers and local officials say have been fatally compromised by evidence of systematic voter fraud.

Mr Abdullah, trailing in partial results already released, swore to defend the rights of voters and pledged he would not to accept any position in government with Mr Karzai, ruling out hopes of a compromise government of national unity. He said that he was having to urge calm on outraged victims of the apparent fraud, as some called for mass protests or even armed resistance.

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Jim Sinclair’s Commentary

Ford auto sales were eblasted across the airwaves with hardly any mention of GM or Chrysler. It is so obvious what financial reporting is doing.

Ford August Sales Surge 17%, Chrysler Down 15.4%; GM Up Since July
UPDATED at 2:32 p.m.

Ford said August vehicle sales were up 17 percent compared to August of 2008, juiced by the government’s cash-for-clunkers program.

(Note: The Ticker originally reported that Ford sales were up 21.2 percent in August, but that figure did not include Ford’s fleet sales for the month, which were way off. Ford led its sales-figure release with the non-fleet number, obviously, because it’s the more favorable one. We call out that sneakiness here.)

Both General Motors’ and Chrysler’s August sales, on the other hand, which makes one wonder how bad they would have been without cash-for-clunkers.

GM was down 20.2 percent compared to August 2008. But the company’s August sales soared 30 percent compared to July.

Chrysler was down 15.4 percent compared to the same period of last year.

At the same time, Chrysler’s August sales were up 5 percent compared to July, so that’s something. The company blamed a lack of inventory for slow sales.

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Posted at 10:19 PM (CST) by & filed under General Editorial.

My Dear Friends,

China tells the Wall Street OTC derivative manufacturers and distributors to go straight to hell.

China has invoked a "Stop Loss" on these fraud ridden instruments.

If you create a specific performance contract that you know under even the slightest pressure cannot perform, you have committed fraud.

My English bull dog Mia, bless her soul, figured out the non-performance characteristics of these financial WMDs.

This will have a MAJOR impact on the sociopath US manufacturers and distributors of OTC derivatives like CDSs that struck the world over with these weapons of mass financial destruction.

This could roll the financial world one more time.

Doing the right thing is never easy. Doing the right thing takes character and courage.

The Chinese are doing exactly the right thing and exactly what the West should have done years ago when long term capital flopped.

Now the rest of the BRIC nations will follow suit.

China’s actions here are another reason why China is headed for the largest economy on the planet.

While the West enriches the creators of this disaster, China herein tells them, to go straight to hell, and that they will not get their money to enrich themselves more. China has invoked a "Stop Loss."

Here is an example of how China will act with regards to the dollar late this fall. You can take that to the bank if you can find a solvent one in the USA, GB or Euroland.

The Wall Street types who are talking heads surmise that China thinks and will act like the Wall Street Weenies. They are so very WRONG.

Screw with China and you will get bitten in the ass by a real dragon. China leads the BRICs.

This will have a MAJOR impact on the sociopath USA manufacturers and distributors of OTC derivatives that struck the world over with these weapons of mass financial destruction, enriching themselves in the process by many trillions.

If China’s banks were the losers on these instruments then the winners, now not getting paid, are the sociopath USA manufacturers and distributors of OTC derivatives. These instruments were not created between Chinese banks, but made and packaged primarily in the good old US of A. Think it out. This is a stop loss for the Chinese.

I was correct 10 years ago when people denigrated me. I am correct on the price of gold as people still denigrate me.

I will have the last word with all these jealous fools.

Respectfully yours,
Jim

China warns banks on OTC hedge defaults -report
Sat Aug 29, 2009 9:47am IST

BEIJING, Aug 29 (Reuters) – Chinese state-owned enterprises (SOEs) may unilaterally terminate derivative contracts with six foreign banks that provide over-the-counter commodity hedging services, a leading financial magazine said.

China’s SOE regulator, the State-owned Assets Supervision and Administration Commission (SASAC), had told the financial institutions that SOEs reserved the right to default on contracts, Caijing magazine quoted an unnamed industry source as saying.

It did not name the banks or the firms in question, but said Keith Noyes, an official with the International Swaps and Derivatives Association, had confirmed he was aware of the letter to the banks. He declined to comment further to Caijing.

It also cited a SASAC official as saying that almost every SOE involved in foreign exchange or trade had some exposure to derivatives such as crude oil, non-ferrous metals, agricultural commodities, iron ore and coal, although only 31 SOEs were licensed to do so.

Nobody at SASAC was immediately available to comment on Saturday.

SASAC took over the job of overseeing SOEs’ derivatives trading from the securities regulator in February after several Chinese firms reported huge losses from derivatives, and quickly tightened the rules, ordering firms to quit risky contracts and report their positions on a quarterly basis.

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http://in.reuters.com/article/oilRpt/idINPEK33016020090829

UPDATE 1-Beijing’s derivative default stance rattles banks
Mon Aug 31, 2009 7:42am EDT
By Eadie Chen and Chen Aizhu

BEIJING, Aug 31 (Reuters) – A report that Chinese state-owned companies will be allowed to walk away from loss-making commodity derivative trades provoked anger and dismay among investment bankers on Monday as they feared it may set a damaging precedent.

The State-owned Assets Supervision and Administration Commission, the regulator and nominal shareholder for state-owned enterprises (SOEs), told six foreign banks that SOEs reserved the right to default on contracts, Caijing magazine quoted an unnamed industry source as saying in an article published on Saturday.

While the details of the report could not be confirmed, it was Monday’s hot topic in financial circles from Shanghai to Singapore as commodity marketers feared that companies holding underwater price hedges could simply renege on the deals, costing banks millions of dollars in profit.

The warning from SASAC follows a series of measures from Beijing this year to crack down on the sale of derivative products by foreign banks to Chinese enterprises, principally big consumers, who bought protection against higher prices last year only to watch the market collapse — leaving them with losses.

While many companies including top airlines have come clean on the losses, some analysts fear another wave may follow.

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Jim Sinclair’s Commentary

China will not Federally fund the OTC derivative winners as the West has by making gift loans to the OTC derivatives losers to fund the non-Chinese OTC derivative winners.

Here comes the standard of "when yes means no." The pressure against doing this will be Titanic but then there are Titanic pressures everywhere to not rock the boat that is rocking anyway.

China targets some, not all, derivative deals: source
Tue Sep 1, 2009 4:52am EDT

BEIJING (Reuters) – A reported warning over defaults on derivatives deals with state-owned Chinese corporates was meant to address specific "problematic" contracts, not the industry as a whole, a government source told Reuters on Tuesday.

The comments appeared to play down concerns of widespread defaults on over-the-counter hedging deals, which had been raised by a weekend report that the State-owned Assets Supervision and Administration Commission had told six foreign banks that state firms reserved the right to default on OTC contracts.

The report on Saturday in the Caijing financial magazine, quoting an unnamed industry source, triggered anger and dismay among investment banks, and a momentary panic over the possibility of defaults on commodity imports or heavy position unwinding, although bankers said both were unlikely.

On Tuesday, Beijing-based officials and analysts said that SASAC, the regulator and nominal shareholder for state-owned enterprises (SOEs), appeared to be stepping up the pressure on foreign banks to allow corporates to exit specific deals that may have been too complex for the companies to understand.

"The move is not meant to cover a comprehensive range of businesses and companies. It’s mainly to deal with some problematic contracts that were signed before, especially those that might have insufficient information disclosure or two parties have disputes over certain details," a government official with knowledge of the issue told Reuters.

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Posted at 2:38 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

Regional banks are now in deep trouble.

Commercial Mortgage Defaults Jump for U.S. Banks
By Hui-yong Yu

Aug. 31 (Bloomberg) — The default rate on commercial mortgages held by U.S. banks more than doubled in the second quarter from a year earlier amid falling rents and occupancies for malls, office buildings and warehouses.

Loans that were 90 days or more past due climbed to 2.88 percent of outstanding balances in the second quarter, from 1.18 percent a year earlier, according to New York-based property research firm Real Estate Econometrics LLC. Defaults increased from 2.25 percent in the first quarter.

“A delinquency may have resolved itself two years ago,” said Real Estate Econometrics President and Chief Economist Sam Chandan. “Today, even one missed payment may be more indicative of an underlying problem, so banks have to be very proactive in addressing the issue.”

Banks held $1.087 trillion of commercial property loans in the quarter, up from $1.077 trillion in the previous three months. That’s almost 15 percent of all loans and leases held by banks, Real Estate Econometrics said. Defaults are rising both for lenders who hold commercial mortgages and for bondholders in the $700 billion U.S. market for securities backed by commercial mortgages.

The CMBS market accounts for about 22 percent of the nation’s $3.4 trillion in commercial real estate debt, according to the Real Estate Roundtable. Defaults and late payments on loans bundled into CMBS could surpass 7 percent by the end of this year, research firm Reis Inc. said on July 30.

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Jim Sinclair’s Commentary

These economic problems are so far from over it is hard to understand how talking heads keep a straight face.

The FDIC will run out of money. The FDIC will go to the US Treasury. The US Treasury will loan the FDIC whatever they need.

The loan will start as cash but end up as short term non-marketable US Treasury instruments. Either way it is more money thrown into the swirling dark hole of hyper inflation.

This is fact. All arguments to the contrary are noise signifying stupidity.

FDIC problem bank list hits 416, but recovery eyed
Thu Aug 27, 2009 3:41pm EDT
By Karey Wutkowski and Steve Eder

WASHINGTON (Reuters) – Problem U.S. banks and thrifts on an official watchlist rose more than a third to 416 in the second quarter of 2009, as bad loans continued to bite, but regulators saw signs of stabilization in the industry.

The Federal Deposit Insurance Corp said on Thursday that the industry swung back to a $3.7 billion loss in the second quarter, after reporting a $7.6 billion profit in the first quarter, primarily due to costs associated with rising levels of bad loans and falling asset values.

"Banking industry performance is — as always — a lagging indicator," FDIC Chairman Sheila Bair said.

She said the source of the banking industry’s problems had migrated from residential loans and complex mortgage-related assets to more conventional types of retail and commercial loans that have been hit hard by the recession.

But Bair pointed to a smaller quarterly increase in troubled loans and decreases in the volume of some delinquent loan categories, as a possible turning point in the quality of assets that have weighed heavily on banks’ balance sheets.

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Jim Sinclair’s Commentary

China keeps marching on its "Dollar Distribution" for minerals and energy.

Only a pinhead would consider China in dollar prison.

PetroChina to take 60 percent stake in Athabasca Oil Sands for $1.7 billion
Bureau News
August 31st, 2009

PetroChina to take oil sands stake for $1.7B

TORONTO — PetroChina Co., Asia’s largest oil and gas company, is making a $1.7 billion investment in the Canadian oil sands.

Athabasca Oil Sands Corp. said Monday that PetroChina is buying a 60 percent working interest in its Mackay River and Dover oil sands projects in northeastern Alberta.

Bill Gallacher, chairman of privately held Athabasca, said it is hard to finance oil sands developments in the traditional equity markets. He said a joint venture with one of the world’s largest oil companies will ensure the two projects are completed on time.

“Oil sands projects are very capital-intensive, long-term investments and difficult to fully finance in the traditional equity market,” Gallacher said in a statement.

He said striking strategic joint venture arrangements with PetroChina “can ensure that the MacKay River and Dover projects will be developed in timely manner, which is excellent news for Alberta and the rest of Canada.”

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Jim Sinclair’s Commentary

Yeah, sure, more MOPE.

If they don’t buy them this year, they will buy them all in January 2010.

Fed May Not Need to Buy All Authorized MBS, Two Officials Say
By Vivien Lou Chen and Steve Matthews

Aug. 28 (Bloomberg) — The Federal Reserve may not need to buy the full $1.25 trillion in mortgage-backed securities the central bank has authorized by year-end, two regional Fed bank chiefs said.

Richmond Fed President Jeffrey Lacker said yesterday in a speech in Danville, Virginia, that he’ll evaluate “whether we need or want the additional stimulus” from buying the full amount. St. Louis Fed President James Bullard, speaking to reporters in Little Rock, Arkansas, said “it might not be necessary.”

The Fed’s program to buy $1.25 trillion in mortgage bonds guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae is aimed at reducing home-finance costs and arresting the housing slump that triggered the recession. The central bank also intends to buy $300 billion of long-term Treasuries and $200 billion of federal agency debt.

Lacker and Bullard may be “staking out a position rather than reflecting the current consensus on the Federal Open Market Committee,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. The FOMC “is going to be much more concerned about how they manage the phasing out of the mortgage program because the Fed is providing a substantial percentage of the investment in conforming home loan bonds.”

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Jim Sinclair’s Commentary

The bad banks go up and FDIC’s funding is dwindling.

US problem banks at 15-year high

The number of problem US banks rose to the highest level in 15 years between April and June, the industry’s regulator has revealed.

The Federal Deposit Insurance Corporation (FDIC) said 416 banks had failed its test criteria during the quarter, up 111 from January to March.

It added that 81 US banks had now been forced to close this year.

The FDIC judges banks on criteria such as the quality of their outstanding loans and the reserve funds they hold.

‘Difficult process’

The regulator said that due to the large number of failed banks, its deposit insurance fund – which safeguards up to $250,000 (£154,000) per personal bank account – had fallen by 20% between April and June to $10.4bn (£6.4bn).

While this was the lowest the fund has been since 1992, FDIC chairman Sheila Bair said she had no plans as yet to ask the Treasury for more funds.

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Jim Sinclair’s Commentary

I will stick with my position that the $9 trillion in deficits is low and should be multiplied by at least a factor of two.

This article states the $9 trillion deficit is only 66% of the real number.

Is $9 trillion estimate on deficit too low?
August 27, 7:15 AM
Mark Vargus

The midyear budget corrections from the White House and the CBO have been issued, and the item most people talk about is the fact that the White House increased its deficit estimates $2 trillion from the $7 trillion that had been the centerpiece of their economic policy back in January to approximately $9 trillion.

Most pundits have pointed this out, but some economists have started to observe that even the $9 trillion estimate of the CBO is potentially only 66% of the true deficit we shall see in the next ten years.

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Jim Sinclair’s Commentary

The long term situation is extremely bad. It cannot be righted.

Alf and Armstrong are correct. Do not be deterred by the cappers.

Stay the course and you will prevail.

Pangloss revisited
Aug 27th 2009 | WASHINGTON, DC
From The Economist print edition

America’s long-term budget outlook has worsened. Not for the last time

EVERY gnarled hack knows that the best way to bury bad news is counter it with a splashy new announcement. Small wonder then that the Obama team chose August 25th to renominate Ben Bernanke for a second term at the Fed—the same day the administration was due to release its updated budget figures. Unfortunately, no amount of diversion can hide the message from the new numbers: America’s budget is on a dangerously unsustainable course.

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Jim Sinclair’s Commentary

One in five is better than most places.

One in five Wisconsin banks in the red
The Business Journal of Milwaukee

Wisconsin bank earnings were down in the second quarter, with nearly one out of every five institutions reporting a net loss, representing an increase of more than 14 percent over the previous quarter.

A combination of lower loan demand, fewer qualified borrowers and increased bank operating costs led to a drop in total lending by Wisconsin banks in the second quarter of 2009, according to the Wisconsin Bankers Association. The figures were pulled from consolidated Wisconsin bank performance numbers released Thursday by the Federal Deposit Insurance Corp.

Wisconsin bank CEOs predicted earlier this year in a Wisconsin Bankers Association economic survey that 2009 would be a challenging year for earnings, said Kurt Bauer, the association’s president and CEO. He said higher interest rates and fewer qualified customers have slowed the mortgage refinancing business that propelled earnings in the first quarter.

Bauer said Wisconsin banks are recording increased delinquencies for both commercial and retail bank customers.

“There are many factors outside of the banking industry’s control influencing bank performance numbers,” Bauer said.

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Jim Sinclair’s Commentary

The Surge in Pakistan will be recorded in history as what it was, a total zero.

Nuclear talks fail to take off after Pakistan protest
REUTERS 1 September 2009, 12:49am IST

GENEVA: Arms negotiators failed to clear the way on Monday for the start of talks this year on nuclear disarmament as Pakistan said its security interests had not been respected. “The window of opportunity for this year is closing today,” Austrian envoy Christian Strohal, the current president of the UN-sponsored Conference on Disarmament, told the 65-member forum.

The conference, which is the world’s sole multinational forum for negotiating disarmament, broke a 12-year stalemate in May when it agreed a work plan to start negotiations on banning production of fissile material for nuclear bombs.

It also agreed to discuss three other issues — nuclear disarmament, prevention of an arms race in outer space and “negative security assurances”, where countries vow not to use nuclear weapons on non-nuclear-weapon states.

Pakistan says implementing the proposals could threaten its national security. Its main concern is that the proposals would have the talks focus on the fissile material treaty, and not seek results in the other three areas.

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Jim Sinclair’s Commentary

Now here is an example of job security.

Two key GOP lawmakers seek audit of AIG trust
Aug 31, 2009, 2:13 p.m. EST
By Ronald D. Orol

WASHINGTON (MarketWatch) – Two key Republican lawmakers on Monday said they are seeking an audit of the trust that manages the government’s controlling stake in American International Group Inc. "While the trustees have the discretion to exercise full control over AIG, the trustees cannot be fired if their decisions conflict with the preferences of government officials," said House Oversight Committee ranking member, Darrell Issa, R-Calif., and Rep. Spencer Bachus, R-Ala., House Financial Services ranking member. "This raises a troubling and urgent question: Who can the American taxpayers hold accountable if the trustees make a decision that is not in their best interest?"

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Jim Sinclair’s Commentary

This proves that somebody reads JSMineset.

As I told you last week, the issue of SDR is an international form of QE, which equals printing money.

IMF Pumps $250 Billion Into Global Foreign-Currency Reserves
By Sandrine Rastello

Aug. 28 (Bloomberg) — The International Monetary Fund said it today pumped about $250 billion into foreign-exchange reserves worldwide, acting on an April call from leaders of the Group of 20 nations to boost global liquidity.

Countries will be able to convert the money, to come from so-called Special Drawing Rights, into hard currencies through “voluntary trading arrangements” with other members, the IMF said on its Web site today. The SDRs are the institution’s unit of account based on a basket of currencies.

The allocation, approved by the IMF’s board of governors earlier this month, will not increase the fund’s pool of money available for lending, the IMF said. “It will, however, provide members with an additional method to obtain hard currencies.”

Another smaller reserves allocation of about $33 billion will take place Sept. 9 and will be limited to members that joined the lender after 1981, such as countries from the former Soviet bloc, the IMF said.

About $110 billion of the total allocation will go to emerging-market and developing countries and $20 billion to low- income nations.

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Jim Sinclair’s Commentary

It is amazing how no one asks the right question. Where is the $50 plus billions?

Nobody can spend that in a lifetime, especially a person who is not in markets.

Report May Shed Light on SEC’s Madoff Blunders
August 31, 2009 10:32 AM
Posted by Daniel Carty

The SEC inspector general is set to submit a report Monday detailing how the agency failed to uncover Bernard Madoff’s multi-billion dollar fraud, according to a Fox Business report.

SEC inspector general H. David Kotz, seen left, started the probe in December after Madoff’s massive Ponzi scheme came to light. Madoff is currently serving a 150-year prison sentence in a North Carolina medium-security facility.

For years, the SEC heard allegations of fraud but didn’t take them seriously. Christopher Cox, who ran the agency at the time of Madoff’s revelation, commissioned the investigation to figure out why.

Kotz didn’t reveal the contents of the report, but told Fox Business that he would submit it to current SEC chairman Mary Schapiro Monday. The agency will determine when to make it public.

Back in January, Kotz told a congressional panel that his probe would be "independent and as hard-hitting as necessary" and vowed not to "hesitate to report the facts and conclusions as we find them."

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Jim Sinclair’s Commentary

Credit Default Swaps will break the bank on the double dip depression.

Anyone with common sense knows that, but this will not stop the banksters as they continue to ruin the world.

ECB Highlights ‘Systemic Risk’ of Credit Swaps Market
By Paul Armstrong

Aug. 31 (Bloomberg) — The credit-default-swaps market is concentrated in the hands of a small group of dealers, which is stoking concern about “systemic risk to financial-market stability,” according to the European Central Bank.

The 10 most active counterparties in Europe account for 62 percent to 72 percent of the credit-swap exposure of lenders surveyed by the ECB, the Frankfurt-based central bank said in a report on its Web site after the market closed Aug. 28.

The credit default-swaps market has become more concentrated because of the failure of dealers and counterparties such as Lehman Brothers Holdings Inc. and Bear Stearns Cos. LLC, the ECB said in the report, titled “Credit Default Swaps and Counterparty Risk.”

The “interconnected nature” of the credit-swaps market and its “structural opacity” may also increase risk, the ECB said.

“In practice, the transfer of risk through CDS trades has proven to be limited, as the major players in the CDS market trade among themselves and increasingly guarantee risks for financial reference entities,” according to the report.

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Jim Sinclair’s Commentary

We know that these people are in need, however, to borrow big to give away big is not good business.

This only makes matters infinitely worse.

Fla. Unemployment Borrowing May Top $1 Billion
by Olga Pierce, ProPublica – August 31, 2009 9:49 am EDT

Florida has become the 19th state to borrow money to keep unemployment benefits flowing after the trust fund ran dry.

So far the state has borrowed $45 million, but officials estimate that it will have borrowed $1.2 billion by the end of the year.

As we detailed earlier this year in our series with public radio’s Marketplace, states operate their own unemployment insurance systems with little federal control over benefit levels and how well they choose to finance their systems. Like many states, Florida requires employers to pay unemployment insurance tax only on the first $7,000 of each employee’s income — the federal minimum, which has not been updated since 1983.

Is your state’s trust fund in danger of running out?

Because of the stimulus bill, states have until January 2011 to pay back their loans with no interest. But if Florida’s balance is not repaid before then — a process that in many states has necessitated business tax increases or benefit cuts — Florida will face tens of millions of dollars of interest payments that must be repaid from its general fund, taking money away from other state priorities

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Jim Sinclair’s Commentary

Will FASB pull back from their present degraded state of blessing lawless abandon?

UPDATE 1-FASB eyes more disclosure on illiquid assets
08.31.09, 11:33 AM EDT

NEW YORK, Aug 31 (Reuters) – U.S. accounting rulemakers have proposed requiring new disclosures on how companies value illiquid assets, a move designed to make it easier for investors to assess businesses’ financial health.

The rules proposed by the Financial Accounting Standards Board would require a company to provide alternative means to calculate how much its hardest-to-value assets are worth, using ‘reasonably possible’ scenarios.

Robert Herz, FASB’s chairman, in a statement said the proposed disclosures would result in ‘increased transparency’ for investors.

U.S. rules for fair value accounting divide assets into three categories: Level 1, Level 2 and Level 3.

The value of a Level 1 asset can typically be determined from market prices. A Level 2 asset is often valued based on prices for similar assets, sometimes known as ‘mark-to-model.’ A Level 3 asset is considered illiquid, and often valued based on complex mathematical models.

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Jim Sinclair’s Commentary

To understand our Chinese friends, reading one statement is to totally fail.

The following is the correct answer.

The Renminbi as a Reserve Currency (Part 1)
August 31, 2009
Patrick Chovanec

Earlier this year, NYU professor Nouriel Roubini attracted worldwide attention by speculating in a New York Times op-ed that the Chinese Yuan, or Renminbi (RMB), might someday supplant the U.S. dollar as the world’s main reserve currency. Chinese officials have been quick to embrace the notion, regularly floating either its negative (the U.S. dollar should not be the global reserve currency) or positive (the RMB should be) formulation in their public pronouncements. Just a week ago, a leading Chinese economist told Bloomberg that “Eventually, the yuan should be demanded as a reserve currency,” but noted that China was still far away from this goal.

It’s no surprise, then, that the Renminbi’s prospects as a reserve currency is one of the issues I am most frequently asked to speak or consult on. In particular, people are eager to understand how recent moves by China to swap currencies with other countries and establish offshore clearing markets fit into the equation, and whether they represent significant steps towards a more prominent international role for the RMB. These are some of the topics I’d like to address over the next few days.

First of all, however, it’s worth defining what we mean by “currency reserves” and why countries keep them. It may help to begin by noting the obvious: everyone needs to live and function primarily in their own country’s currency. Americans need dollars, Europeans need Euros, Indians need rupees, and so on. We only need a foreign currency when we want to pay someone who requires it to live and function somewhere else, where that currency is used. Each country’s currency is like a special kind of commodity that allows us to offer something of immediate value to people in that country’s economy. Certain actual commodities like gold and silver can be used as a kind of super-currency whose value is recognized and easily exchanged for local currency in all economies.

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Posted at 2:26 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

Apparently pulling trillions out of an already weak economy with double digit unemployment is child’s play.

Who are these talking heads kidding!

CIGA Marc 77

Fed Can Avoid Inflation Danger: NY Fed President
Published: Monday, 31 Aug 2009 | 7:38 AM ET

Fears of inflation because of the Federal Reserve’s massive quantitative easing measures are overblown, because the Fed has the ability to pull the liquidity out of the market fast enough to prevent price rises, William Dudley, New York Fed president, told CNBC Monday.

Since the onset of the financial crisis, the Fed has cut interest rates near zero and injected about $1 trillion in the markets to prevent credit from freezing up.

Many analysts have warned the measures carry a high risk of inflation and on Monday a survey of economists in the National Association for Business Economics showed that 41 percent of them believed the measures to be inflationary.

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Inflation Will Accelerate This Decade, Business Economists Say
By Carlos Torres

Aug. 31 (Bloomberg) — The Federal Reserve will be unable to prevent the trillions of dollars in government stimulus pumped into the U.S. economy from stoking inflation later this decade, a survey of business economists showed.

The price gauge tracked by the central bank will rise 3 percent a year on average from 2014 through 2018, according to the median estimate in a poll taken by the National Association for Business Economics. The rate exceeds the 2 percent pace that the respondents said was the Fed’s unofficial target.

The report is in line with surveys of consumers and indicates the central bank may have to work harder to damp inflation expectations after pouring more than $1 trillion into credit markets in a strategy known as quantitative easing. Economists in the survey also said the Obama administration’s $787 billion stimulus program would push consumer prices higher.

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Posted at 11:06 PM (CST) by & filed under General Editorial.

Dear Friends,

Martin Armstrong’s latest contribution poses the question of whether or not gold will go to $5000.

He does say it will reach $3000.

Mr. Armstrong, although living a complex life probably as a victim, has NOT been wrong ONCE on trend since I first knew him in the 1970s.

Keep in mind that loss of confidence in government is loss of confidence in the currency of that government. It is not jumping up and down yelling bad government.

Please review the following, and then you will better understand my strategy.

Respectfully yours,
Jim

Click here to view Martin Armstrong’s latest…