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

“Rising prices of precious metals and other commodities are an indication of a very early stage of an endeavor to move away from paper currencies… What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment."
–Alan Greenspan, 9 September 2009

Jim Sinclair’s Commentary

Listening the heroes of Wall Street speaking right now of their patriotic belief in America is shocking. These wise men should be more interested in protecting people than simply talking their positions.

New ghost towns: Industrial communities teeter on the edge
By Rick Hampson, USA TODAY

RAVENSWOOD, W.Va. — When Henry Kaiser arrived 55 years ago, this place was no place — "a rural problem area," the government called it, so poor and isolated that the population had dropped 15% since 1940.

That all changed after Kaiser, the industrialist who’d turned out ships and planes at a record pace in World War II, built the nation’s largest consolidated aluminum works here on the banks of the Ohio River.

The plant paid Tim Shumaker his first living wage, and he won the right to keep it two decades ago after his union was locked out for 19 months.

Today, that victory seems hollow. Shumaker, 49, has been laid off. Part of the vast aluminum complex is closed, and the rest is for sale — its orders down, its workforce reduced, its future uncertain. Shumaker stands at the locked plant gate and, after a year without work, worries what’s next for him and his community. "The way things are going," he says, "there’s not going to be anything here."

Ravenswood, with 4,000 people and one big factory, is like many towns in the USA where things still are made: caught in a winter between recession and recovery, hoping the latter will arrive before the former kills the last decent blue-collar job.

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Jim Sinclair’s Commentary

Although many will dismiss this as extreme, please bear in mind that there is numerous historical precedent that supports the argument.

We must arm ourselves for a class war
The recession has increased the wealth gap to dangerous levels, and George Osborne does not seem serious about tackling it, says Edmund Conway.
By Edmund Conway
Published: 6:40AM GMT 25 Feb 2010

If you don’t work in the City or in economics, you may not have heard of the annual Mais lecture, which was delivered last night by George Osborne. But it’s a big deal, arguably the most important set-piece speech in the Square Mile calendar. And only once before has City University, the host, deigned to invite an opposition politician primed for election to deliver it.

On that occasion, the young thrusting pup at the lectern derided a government in crisis, its finances in a state, its economic reputation in tatters. He promised to cut the deficit, to intervene in markets where necessary, and laid out a "new framework" for running the economy. That man was Tony Blair.

Last night, George Osborne became the second opposition politician to deliver the lecture. His title? "A New Economic Framework". That aside, the difference could hardly be more stark. In 1995, the economy was in recovery. With the deficit past its peak, the great transformation in macro-economic management had already taken place, when the collapse of the Exchange Rate Mechanism forced Britain to start targeting inflation rather than exchange rates.

Today, the economy is in a far more damaging spiral. The first leg of the financial and economic crisis, which stemmed from excessive private borrowing and the subsequent collapse of the banking industry, is over. The second leg, characterised by a crisis of sovereign debt in even the richest economies, is only just beginning. The Bank of England’s inflation-targeting approach is under question from sources as authoritative as the International Monetary Fund. The world economy looks increasingly vulnerable to a "double-dip", tipping back into recession or stagnation rather than bouncing back to health.

More important, both political parties are committed to spending cuts of a scale never before experienced by the public. Ignore the fuss about economists’ letters: based even on Labour’s plans for public spending, the next half-decade will be the first time in modern history that a government has imposed five successive years of real spending cuts. The question is not about timing (the Tories would cut earlier and slightly more) but over who will push the cuts through. Labour perennially disappoints and misses its fiscal targets. What most recommends the Tories is the pedigree that suggests they will at least approach the task with some relish.

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Jim Sinclair’s Commentary

Which escalator did Wall Street, The City, and the Bahnhofstrasse take?

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Trader Dan’s Commentary

Here is a typical government response to a spending crisis – conjure up trillions of dollars in new, unpaid for spending, but cut Saturday mail delivery. Yep – that ought to close the funding gap! After all, $3.5 billion will make a big dent in that 2 year projected deficit of $2.9 trillion!

Wait until it costs us $1.00 to mail a first class letter.

What makes this all the more idiotic is that the Administration is revealing their “Cash for Caulkers” program where the feds will pay homeowners to caulk their holes in their houses. The number that I am reading associated with this program is $6 billion!

Now that is government math if I ever saw a wondrous example. Cut Saturday mail and save $3.5 billion but spend $6 billion on caulk. Folks – we could not make this stuff up.

This is supposed to create all manner of green jobs. About the only jobs I see being created by this is “Honey Do” lists. You know what those are if you are married: “Honey, can you do the caulking on the house”?

Postal Service Seeks Permission to End Saturday Delivery
Updated March 02, 2010

Postmaster General John Potter said Tuesday that he intends to seek congressional approval to cut Saturday delivery as part of a wide-ranging plan to close a multi-billion dollar budget gap.

Postmaster General John Potter said Tuesday that he intends to seek congressional approval to cut Saturday delivery as part of a wide-ranging plan to close a multi-billion dollar budget gap.

Though the idea of cutting service from six to five days has gotten a cool reception on Capitol Hill, Potter said that the plan would include enough flexibility so that customers who need Saturday service can get it and that this and other changes need to be implemented for the Postal Service to survive. 

"We built a plan that we think is very reasonable. … We intend to pursue that," he said. "It’s a move that we simply have to make."

The financially struggling Postal Service is trying to find ways to get out of the red without resorting to taxpayer aid. Potter announced Tuesday that the service could lose a staggering $7 billion this year — losses attributed to a combination of the recession and the predominance of e-mail and other electronic forms of communication.

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Jim Sinclair’s Commentary

Don’t hold your breath. Transparency in this is its demise.

You cannot clear anything without standards and transparent immediate market related valuation.

Derivatives dealers agree on OTC updates
By Aline van Duyn and Gregory Meyer in New York
Published: March 2 2010 02:00 | Last updated: March 2 2010 02:00

Derivatives dealers have agreed to give regulators more information about over-the-counter derivatives trades in the credit, interest rate and equity markets and will continue shifting more trades towards central clearing, they said in a letter to the Federal Reserve Bank of New York yesterday.

Even as banks raised their target of clearing credit derivatives that can be cleared to 85 per cent from 80 per cent – a key measure that regulators are calling for to reduce the risks of a systemic collapse of the financial system in the event of a default by a dealer – derivatives investors have so far failed to sign up for similar specific clearing targets.

Extending clearing to large dealers as well as big investors is widely regarded as an important step towards reducing derivatives risks, but in practice it is complex to implement.

"Remaining impediments to the expansion of buy-side access to clearing include legal and regulatory, risk management and operational issues," the letter to the Fed said. They said "a meaningful amount of open interest in buy-side transactions will be cleared".

With continued concerns about transparency in markets such as credit default swaps, which have come to the fore amid the pressures on Greece and its creditworthiness, the industry is planning to analyse existing sources of data in OTC markets, with the first report due at the end of March.

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Jim Sinclair’s Commentary

This article by Huffington posses interesting questions.

Greece-Goldman Sachs Deals Were ‘Completely Scandalous’ – And Perfectly Legal: Martin Wolf (VIDEO)

Jim Sinclair’s Commentary

As our Polish and Russian CIGAs said, "Please read the handwriting on the wall."

States are falling like leaves in the fall. The CDS market, if you can call it that, will attack all the States of the US, just as it is attacking Greece now.

State mulls unpaid leave
Furloughs could be option for government agencies in Mississippi

State agency heads are readying plans to furlough employees or reduce staff if necessary as revenues continue to decline and lawmakers remain at loggerheads over a plan to help agencies through the remaining months of the fiscal year.

House and Senate budget negotiators traded jabs Friday morning and left the Capitol for the weekend without an agreement to offset cuts to the 2010 budget.

Last week, the State Personnel Board signed off on a request from the Department of Human Services to furlough employees for up to four days in the remaining four months of the fiscal year, said Deanne Mosley, the board’s chief of staff.

Julia Bryan, spokeswoman for DHS, said the request was put in as a "just-in-case." The department employs about 3,200.

"We have no plans at this time to furlough employees," Bryan said. "It’s strictly strategy or pre-planning in the event that more budget cuts come down. That’s the last thing we would want to do is have our employees off work."

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Jim Sinclair’s Commentary

See what snow storms can do when MOPE is involved?

Jobless claims up 12% in past 2 weeks
By Blake Ellis, staff reporter
February 25, 2010: 9:59 AM ET

NEW YORK (CNNMoney.com) — The number of Americans filing for initial unemployment insurance surged to just below the 500,000 level last week, and have climbed more than 12% over the past two weeks, the government said Thursday.

There were 496,000 initial job claims filed in the week ended Feb. 20, up 22,000 from a revised 474,000 the previous week, the Labor Department said in a weekly report. The prior week, there were 442,000 claims filed.

A consensus estimate of economists surveyed by Briefing.com expected new claims to fall to 460,000.

The 4-week moving average of initial claims was 473,750, up 6,000 from the previous week’s revised average of 467,750.

"This is certainly not surprising given the very adverse weather conditions for the eastern half of the country, especially in the major population areas," said Robert Dye, a senior economist at PNC Financial Services. "Weather has a huge impact, particularly with things like construction, which remains very soft."

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Jim Sinclair’s Commentary

Yet another example of MOPE.

Summers says weather may distort employment data
The Director of President Obama’s National Economic Council is preparing the markets for what could be an ugly employment report this Friday. In an interview with CNBC, Summers had this to say, "The blizzards that affected much of the country during the last month are likely to distort the statistics … it’s very important to look past whatever the next figures are.

Jim Sinclair’s Commentary

The entities providing this financing are dependent on Federal funds because they are broke.

FHFA Extends Refinance Program
Tuesday, March 02, 2010

Federal Housing Finance Agency Acting Director Ed DeMarco today announced the extension of the Home Affordable Refinance Program, (HARP), a refinancing program administered by Fannie Mae and Freddie Mac, to June 30, 2011. … The HARP program expands access to refinancing for qualified individuals and families whose homes have lost value. The program was set to expire on June 10 of this year.

“FHFA has reviewed the current market situation and the state of mortgage insurance availability and has determined that the market conditions that necessitated the actions taken last year have not materially changed,” said DeMarco. “Accordingly, to support and promote market stability, and to encourage lenders and other mortgage market participants to fully adopt the HARP program, including the implementation of the October 2009 expansion of loan-to-value ratios (LTVs) to 125 percent, FHFA is authorizing the extension of HARP until June 30, 2011.”

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Jim Sinclair’s Commentary

I have no financial interest is this company yet I financed the purchase of the high tech equipment that can actually examine gold and silver regardless of the item size and determine the purity without error.

I did this because of my concern for the CIGA community and my knowledge that crooks have taken control of this world of finance in all forms.

To keep my intentions pure I have excused the debt, and will not accept repayment of any kind.

What I can tell you is that it works.

Click here to watch the video

Their email address is BullionAnalysis.com at info@bullionanalysis.com.

BullionAnalysis LLC has developed a technological application that is unique to the precious metals market, for the purpose of determining if your bullion has been counterfeited by including tungsten alloy. This technology is completely safe and non-destructive to the precious metal, and will be effective on everything from fractional ounce coins all the way up to the full size 100, 400 and 1,000 ounce COMEX bars of gold and silver.

Their technological application has been developed in response to the growing threat to the bullion community from tungsten/lead alloy adulteration. Tungsten (19.25 g/cm3 density) has a density nearly identical to gold (19.32 g/cm3 density), and lead (11.35 g/cm3) will have a density very close to pure silver (10.45 g/cm3). Lead can also be alloyed with lighter elements to match even closer the density of silver. The threat arises from unscrupulous individuals and possibly institutions that have been removing precious metal from the center of bullion bars and replacing it with tungsten or lead alloy. Modern computer-aided machine tools are then used to seamlessly re-smooth the surface of the bullion product to hide any trace of the theft that has just happened.

Traditionally, the use of a density calculation (mass divided by volume) has been the solution to verify the assay purity of bullion. Unfortunately the insidious use of tungsten and other alloys that match the densities of gold and silver make this test completely useless for this type of problem.

Their new detection technologies are unique to the bullion market. They can detect tungsten/lead and other impurities and cavities that are hidden at any depth inside the bullion product and it is 100% completely non-destructive and safe.

In addition, they are able to produce tamper-resistant holographic-sealed assay certificates with the analysis results for the bullion item, that bear a digital image of the bullion product and show the serial number and hallmark if present. These tamper-resistant assay certificates could then trade with the bullion product and give both buyers and sellers a sense of real security.

At the present time they are focusing their efforts on delivering this service to depositories and institutions and plan to expand their services to cover retail gold and silver investors in the near future.

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

Dear CIGAs,

Gold continued its impressive performance from yesterday as it gathered more upside momentum enabling it to knife through the determined bullion bank selling near the $1,130 level that has held it in check for two weeks now. The move is all the more telling since it is occurring in the face of Dollar strength. As noted previously, the game in gold has changed thanks to what is occurring in Europe and the consequent one record high after another in both the Euro price of gold and the British Pound price of gold. That is proving too be a bridge too far for gold bears to deal with.

Euro gold was fixed €831.243 (another lifetime high) while British Pound gold came in at £752.857 (another lifetime high as well) at the afternoon London fix. Let me remind you that when we see these record high gold prices what we are actually observing is the degradation of the currency. The British Pound in particular is in serious trouble. The Swiss Franc is faring a wee bit better than the Euro and the Pound but all of Europe is pretty much being painted with the same brush right now as Swissie Gold is at levels not seen since January 1980!

This sort of thing begins to feed upon itself as fear begets more fear. If not checked, it is just a small slip from fear to outright panic. I would think that a move above €900 in Euro priced gold or a move above £800 in British Pound priced gold would spark more of what might be termed “panic buying” in gold out of Europe. Do you remember the media buzz when gold first breached the $1,000 level here in the US? Imagine the newspapers on the Continent when gold breaks above the €1,000 mark! Such events can happen with considerable speed so we cannot rule this out even though it may be a bit premature to be talking about €1,000 euro gold.

This brings me to another point – Asian Central Banks are in the process of diversifying their massive reserves. We know that some of the diversification included the selling of US Treasuries and the buying of European issued debt. That is now suddenly not looking like that wise of a move. Indeed, more and more Western issued debt is going to be coming under suspicion which makes the old barbarous relic (gold) look increasingly like the smart play. Put yourself in the place of the managers of this huge stash of reserves. You are sitting there watching European currencies plunging into a sink hole with that debt paying a meager yield so you turn to look at Treasuries. While the Dollar has stabilized out of default, its masters are managing it in reckless fashion by spending trillions that they do not have and have no way to ever repay, with yields also very low by any standard of historical comparison. What would you do??? Gold anyone?

What makes the move higher in gold more convincing is that it is being confirmed by the mining shares. The HUI finally broke through the sellers’ blockade at 420 pushing above the 50 day moving average in the process. It is currently sitting right on the downsloping trendline drawn off the December 2009 and January peaks. Another day of strength with a strong finish could see some of those hedge fund ratio spreads begin to lift and take more of the pressure off of these things. The bulls have to prove their mettle first however and put in a spirited finish to end today’s session. So far, the price action is very impressive.

The Dollar continues to push above the 81 level on the USDX but is having trouble maintaining a foothold above it. Each day it has climbed above that level it has slowly faded and moved down as sellers have entered the fray. Again, it is not that the Dollar is strong ( this is a clue to the clueless talking heads at CNBC) it is rather that Europe is so weak. Remember the Dollar’s value on the Forex markets is set against the other currencies out there. The real key to understanding the value of the Dollar is to view the gold price and not its levels on the Forex markets.

On the technical front – gold’s break above the $1,130 level takes it outside of the recent range trade and could constitute an upside breakout and the beginning of a trending move. I say “could” because while the major moving averages are all now pointed higher, I would like to see one more day of trading above $1,130 with preferably a test of that level that sees price rebound higher. That accomplished we would then have one more resistance level to deal with. That level is centered between $1,152 and $1,155. A strong push through this level and there is very little in the way of chart resistance until $1,200.

There is a band of decent support near the $1,100 – $1,104 level. Below that is $1,088 – $1,092.

Open interest in gold had a nice jump of 5440 yesterday revealing the influx of fresh managed money which is exactly what this market needs to take it higher.

Crude oil broke through the $80 barrel level this morning. That has been a tough nut to crack. A push through $81 would set it up for a test of $84. Higher crude prices, while not necessary to a move higher in gold, certainly do not hurt gold’s cause any.

Copper is strongly higher today as well. Continued strength there is associated with both the Chilean earthquake and possible supply disruptions as well as general metal buying by commodity index funds.

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

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Posted at 12:38 PM (CST) by & filed under Jim's Mailbox.

Greetings Jim,

Both the Gold Currency Index and gold in US dollar terms broke above key resistance levels today. The positive divergence between the two daily charts that began in February predicted this breakout, and the GCI chart continues to exhibit more strength than its gold counterpart, suggesting that a move back up to the all-time highs has become more likely.

Best,

CIGA Erik
Prometheus Market Insight
http://www.prometheusmi.com

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Notes From Underground: Bazookas versus torture chambers-Rambo or the Marquis de Sade?
Yra | March 1, 2010 at 10:27 pm

The European debt news is getting stale as the accusations and denials from all the main actors in the drama are getting tiring, to say the least. The on-again, off-again political agreements are causing the markets to suffer vertigo. We caution Frauline Merkel that if she fails to achieve German control of the ECB her government will suffer a tremendous decrease in authority even if the ECB does not fall. The contagion of the DEBT problem does seemed contained as the Spanish, Portuguese, Italian and Irish bonds all seem to be holding to their recent differentials versus the Germans. It may solely be due to threats leveled at hedge funds and other market players if they continue to pressure the European debt markets through the use of credit default swaps and other speculative instruments.

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Japanese Yen
CIGA Eric

While the world focuses on the flavor of the day, troubles in Greece, it continues to ignore the persistent strength in the Japanese Yen relative to the dollar. Once the carry trade currency of choice, the Yen is embarked on a bullish run against the dollar since 2007. How can the world’s reserve currency be a safe haven when it continues to undeperform the world carry trade currency? I can’t. That’s because the world’s reserve currency is the new carry trade currency. This means that its status as a safe haven largely an media driven illusion.

Japanese Yen ETF (FXY) vs S&P 500:
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The Yen’s battle with resistance reminds me of the old Aerosmith song, Chip Away the Stone (1978).

Japanese Yen ETF (FXY):
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Gold Shares Follow Gold
CIGA Eric

Stretch a rubber band too far, and it will snap back hard when it gives.

It is always a dangerous assumption to believe that it’s different this time. Gold stocks take their lead from gold not equities. The historical relationship, rubber band, is being stretched hard in 2010. When the rubber band gives without warning, it will snap back hard. This will leave many gold share investors without positions.

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Gold Shares Follow Gold
CIGA Eric

Stretch a rubber band too far, and it will snap back hard when it gives.

It is always a dangerous assumption to believe that it’s different this time. Gold stocks take their lead from gold not equities. The historical relationship, rubber band, is being stretched hard in 2010. When the rubber band gives without warning, it will snap back hard. This will leave many gold share investors without positions.

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Posted at 4:45 PM (CST) by & filed under In The News.

Dear CIGAs,

If we could take a lesson from my dear departed friend YEKNOD, the gold would be under the floor of the garage covered by 3 feet of cement. I wonder if YEKNOD told anybody? That is the upside and downside of keeping your gold near.

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Jim Sinclair’s Commentary

It appears as if Iran has played High Stakes Poker to the point of gaining a nuclear club membership.

Sinclair6 v2

Jim Sinclair’s Commentary

This is pure MOPE. OTC derivatives without standards and accurate means of valuation cannot be effectively cleared by any exchange no matter what the media tells you.

None of this has any application to the mountain of old OTC derivatives that was valued at one quadrillion, one hundred and forty four trillion before the BIS altered their means of computer valuation to "Value to Maturity," in order to reduce it to $600 trillion. The article did not even get that right.

Derivatives players agree to expand clearing-NY Fed
Mon Mar 1, 2010 2:34pm EST

NEW YORK, March 1 (Reuters) – Large participants in the $450 trillion, privately traded derivative markets gave new commitments to regulators on Monday, as part of efforts to expand transparency and central clearing of the contracts

Lawmakers are seeking to bring derivative markets under the oversight of regulators after the contracts added to concerns about financial companies when Lehman Brothers collapsed in 2008, due to the web of exposures the contracts create between large institutions.

Derivatives are based on underlying assets including bonds and commodities or can be tied to currency and interest rate moves.

Large market participants — including banks like JPMorgan Chase & Co (JPM.N), investment companies such as Pacific Investment Management Co and industry groups – said in a letter to the New York Fed they will expand the number of contracts that are deemed eligible for central clearing.

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Iran launches Saeqeh fighter-bomber squadron
Thu, 25 Feb 2010 10:19:41 GMT

The Iranian military has introduced a new squadron of domestically-manufactured Saeqeh fighter-bombers to the country’s Air Force to strengthen its deterrence power.

“This fleet is the first fighter-bomber squadron made up of domestically manufactured aircraft,” a top Air Force officer, Seyyed Mohammad Alavi, explained on Wednesday.

“The plane’s parts have all been produced inside the country in a joint project between the Defense Ministry and the Air Force,” he added.

Alavi did not elaborate on the number of aircraft in the squadron, but said that several new Saeqeh fighters would be added at a later date making a full fleet of 24 aircraft.

The senior Air Force officer also said that all the pilots that were to fly the planes had been trained in Iran.

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Japan offers to enrich uranium for Iran
Wed, 24 Feb 2010 13:16:31 GMT

Japan has offered to enrich uranium for Iran allowing access to nuclear power by the Islamic Republic, the Nikkei business daily reports.

The Japanese proposal is aimed to allay international fears that Iran might be seeking an atomic weapon, according to Wednesday’s edition of the report.

The uranium would be used at Tehran’s research reactor to produce medical isotopes, the report added.

According to the publication, the Iranian government has not yet responded to the proposal, but the issue was expected to be discussed Wednesday when the visiting Iranian Parliament (Majlis) Speaker Ali Larijani and Japanese Foreign Minister Katsuya Okada meet in Tokyo.

"Japan strongly hopes Iran’s nuclear issue will be resolved peacefully and diplomatically … and that Iran considers a related UN Security Council resolution seriously", a foreign ministry spokesman quoted Katsuya as saying in the meeting.

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Jim Sinclair’s Commentary

How can anyone not heed the writing on the wall as our Polish and Russian friends said?

1. The FDIC is broke.
2. Fanny and Freddie are on the rocks.
3. States (plural) are rolling over.
4. Hamlets, villages, towns and cities are broke.
5. Few commercial loans exist that are healthy.
6. According to debt versus GDP, the dollar is number three to be attacked by the CDS market.

Fannie Taps Treasury for $15.3 Billion More After a 10th Loss
By Dawn Kopecki

Feb. 27 (Bloomberg) — Fannie Mae will seek $15.3 billion in U.S. aid, bringing the total owed under a government lifeline to $76.2 billion, after its 10th consecutive quarterly loss.

The mortgage-finance company posted a fourth-quarter net loss of $16.3 billion, or $2.87 a share, Washington-based Fannie Mae said in a filing yesterday with the Securities and Exchange Commission.

Fannie Mae, which owns or guarantees about 28 percent of the $11.8 trillion U.S. home-loan market, has been hobbled by a three-year housing slump that wiped 28 percent from home values nationwide and led to record foreclosures. The company, which posted $120.5 billion in losses over the previous nine quarters, and rival Freddie Mac were seized by regulators in September 2008.

“Our financial results for 2009 reflected the continued adverse impact of the weak economy and housing market, which has resulted in record mortgage delinquencies and contributed to our recording significant credit-related expenses and net losses during each quarter of the year,” Fannie Mae said in the filing.

For the full year, Fannie Mae’s loss widened to $74.4 billion from $59.8 billion in 2008.

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Jim Sinclair’s Commentary

Can you imagine what the number would be if fair valuation was still required by FASB?

AIG posts $9bn loss in fourth quarter

Insurer AIG, which was saved by the US government in 2008, has posted a loss in the last three months of 2009.

The insurer said it made a net loss of $9bn (£5.9bn) in the fourth quarter, compared with a $62.6bn loss in the same period in 2008.

AIG made a loss following two quarters of profits. Boss Robert Benmosche had previously warned of more "volatility" in terms of profits.

The insurer made a net loss of $12.3bn for the whole of 2009.

In 2008, it lost more than $100bn.

AIG was bailed out by the US government in 2008 and is now 80% owned by it. In total, the firm has received $182.5bn of government funding.

The loss was primarily a result of the $25bn in credit that was available from the Federal Reserve Bank of New York.

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Jim Sinclair’s Commentary

Good luck. This will never happen. The lobbyists will throw all their power against it.

What ever happens that is in favor of the public?

Frank, Peterson Vow to Eliminate Provision Keeping Swaps Opaque
By Matthew Leising

March 1 (Bloomberg) — Congressional leaders are vowing to eliminate a provision in legislation passed by the House in December that would allow banks to keep the private derivatives market opaque, protecting billions in profits on swap trades.

Barney Frank and Collin Peterson, chairmen of the Financial Services and Agriculture Committees respectively, indicated they’ll remove a section of the bill that allows trades to be routed through systems that keep prices private, even though the legislation was touted as a way to make the transactions transparent.

The bill’s sponsors hadn’t intended to allow traders to use non-public confirmation systems, Peterson, a Democrat from Minnesota, said in an e-mailed statement in response to questions from Bloomberg News. “To the extent clarification of that language is needed, that will be pursued during the conference committee process.”

Congress is attempting to bring more oversight to Wall Street after largely unregulated bets tied to the subprime mortgage market helped spur the bankruptcy of Lehman Brothers Holdings Inc. and a $182.3 billion U.S. bailout for American International Group Inc. Private derivatives complicated efforts to solve the crisis by making it hard to know how interconnected banks had become.

Trades that don’t have to be done on exchanges or electronic-trading systems are more lucrative because when investors don’t have access to a range of prices, banks can preserve the gap between the price they pay to buy swaps and how much they charge to sell them. That so-called bid-ask spread boosts revenue for banks in the OTC market.

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Jim Sinclair’s Commentary

Greece is more dangerous than the Lehman flush was. Think of what it means to have the destroyers enriched by attacking currency after currency.

If Greece is not bailed out then the only rational conclusion is that a total Western implosion is being invited immediately. If Greece is bailed out then QE is alive and exploding.

Gold is the only asset that will survive this unprecedented state of affairs because it is a currency free of liabilities.

Greece Now, U.K. Next as Scots Ready for Pound Plunge
By Rodney Jefferson

March 1 (Bloomberg) — While the eyes of the world focus on Greece’s debt crisis, investors in Edinburgh are busy preparing for the U.K. to be next.

Turcan Connell, which caters to rich families, expects the pound to lose between 20 percent and 30 percent against the dollar once investors turn their sights on Britain as the government sells a record amount of debt. Sterling slid to a 10- month low versus the U.S. currency today.

“Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,” Haig Bathgate, head of strategy at Turcan Connell, said at the company’s offices in the Scottish capital. “The U.K. is in a similar predicament. It could be hit very hard.”

Money managers in Edinburgh, where investment decisions have been made on behalf of insurers, pensioners and the wealthy for two centuries, are maneuvering to protect assets from the U.K. economy as it limps out of its worst recession on record.

Bruce Stout, whose Murray International Trust Plc in Edinburgh has doubled over the past five years, said the chance of a plummeting pound are “better than even” and his biggest holdings are in Asia and Latin America. He called sterling a “very vulnerable currency.”

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Jim Sinclair’s Commentary

This is absolutely outrageous and an example of total madness. This is a sign of the end of the Western empire.

RBS paid £1.3bn bonuses on profit of just £1bn
Royal Bank of Scotland paid its investment bankers £1.3bn in bonuses for making just £1bn in profit last year, not the record £5.7bn declared last week.
By Philip Aldrick
Published: 9:41PM GMT 28 Feb 2010

The state-backed lender’s results show that £4.7bn of the investment bank’s worst losses were hived off to the "non-core" division being wound down. Although the bank’s split into "core" and "non-core" units has been well explained, the separation generously flattered the investment bank’s numbers and allowed management to present it as a record year for the division.

Stephen Hester, chief executive, used the performance to justify the £1.3bn bonuses paid to investment bankers, at least 100 of which received more than £1m.

RBS’s numbers show that impairments in the "core" investment bank totalled just £640m, helping it produce £5.7bn of the £8.3bn of profits made by the bank’s ongoing businesses. By contrast, investment banking impairments dumped in the "non-core" bank totalled £4.7bn.

No other UK bank separates out its "toxic" legacy debt. Barclays’ investment bank, Barclays Capital, suffered £2.6bn of impairments last year, cutting profits to £2.46bn. However, analysts point out that RBS, now 84pc owned by the state, has taken more conservative marks on its assets than peers, which contributed to the size of the "non-core" writedowns.

Few rivals have removed the "toxic" assets from their investment bank. Credit Suisse has hived assets off but is linking bonus payments to the performance of the portfolio. Last week, Commerzbank, the German lender that was rescued by Berlin, said it was not paying any bonuses at all in its investment bank.

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Jim Sinclair’s Commentary

The drums of war can be heard.

Israel distributes new gas masks to civilians: army
Agence France-Presse
Jerusalem, February 28, 2010

Israel on Sunday began distributing new gas masks for civilians to use in a possible chemical or biological attack, the army said.

"The civil defence has asked the Israeli postal service to begin distributing gas masks on an experimental basis to the residents of Or Yehuda," a military spokesman told AFP, referring to an area near Tel Aviv.

"Gradually, based on the lessons learned in this operation and in accordance with the Israeli government’s decision, the distribution will be extended to the entire population," he added.

The government decided on January 5 to distribute some eight million new gas masks, one for each Israeli, by 2013.

Israel has long feared that chemical or biological weapons may be used against it in a future conflict involving Iran or Syria, but officials have insisted the distribution of the masks is not linked to any imminent threat.

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Jim Sinclair’s Commentary

1. Pakistan will go Taliban.
2. Israel will make a major miscalculation.
3. Turkey will become a victim.

That was a war council in Damascus
Last Updated: March 01. 2010 12:13AM UAE / February 28. 2010 8:13PM GMT

The three-party meeting [Syria, Hizbollah and Iran] that took place in Damascus on Friday gathering the Syrian president Bashar al Assad, the Iranian president Mahmoud Ahmadinejad and the Hizbollah chief Hassan Nasrallah was a war council to devise counterattack plans and assign tasks in the event of an Israeli offensive on one or all parties, wrote Abdelbari Atwan, the editor-in-chief of the pan-Arab newspaper Al Quds al Arabi.

“The timing of the meeting, the way it was undertaken and the ensuing press conference that was held at its conclusion, all point to a strategic coalition being reinforced. This is the build-up of a new front that will spearhead the confrontation with the US-Israeli alliance and whichever Arab countries that may, expressly or implicitly, be affiliated with it.”

The Iranian president said he expects war to break out somewhere between spring and summer of this year. Meanwhile, the Hizbollah chief vowed to strike the Israeli capital, its airports and power stations if Israel dared to attack Beirut’s critical infrastructure

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Jim Sinclair’s Commentary

Do you really believe that the Fed can drain anything?

I have assured you that there is no practical tool to accomplish this at this point in time or in the foreseeable future.

The operative word is "PRACTICAL,"

Senate leader predicts ‘massive layoffs’
Posted: March 1, 2010 – 11:10am
By Walter C. Jones

ATLANTA – Senate Majority Leader Chip Rogers announced Monday morning that “massive layoffs” will be one result in how the legislature copes with a roughly $1 billion shortfall in expected revenue for next year’s budget.

“I’m not going to sugarcoat the situation we’re in. Yeah, there will be massive layoffs,” said Rogers, a Woodstock Republican.

He wouldn’t say how many state workers could lose their jobs. One idea being investigated is offering an incentive for the 8,000 workers already eligible for retirement to give up their jobs.

Rogers met with reporters during his weekly press conference at the Capitol. Asked if last week’s round of hearings about the painful cuts possible for state agencies was a way to make tax increases politically palatable, Rogers said not from the Senate leadership’s point of view.

“We’re not looking at any tax increases at all,” he said. “We’re looking at cuts, cuts, cuts.”

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Posted at 1:47 PM (CST) by & filed under Trader Dan Norcini.

Dear Friends,

There are two things of significance that need to be noted in today’s trading session.

The first is that the European currencies were again under attack with the Euro, the Swiss Franc and the British Pound all getting hit hard. The Pound in particular is getting obliterated. It is evident that the sharks are now in a feeding frenzy when it comes to Europe. If I lived in England, I would be looking to protect my life’s earnings as rapidly as possible. The Pound looks like it is on its way to 1.43 or lower before any chart support is likely to appear.

The result – European based gold prices shot higher at the PM fix today scoring brand new all time highs in terms of both the Euro and the British Pound. Euro priced gold scored a Fix at €824.269 while Sterling Gold came in at a mind-numbing £746.149. Can anyone say that European investors are not becoming increasingly fearful of the health of their currencies? Wait until the same fear finds its way over here and wraps itself around the minds and hearts of the average US investor.

The second occurrence of today is that US Dollar priced gold managed to claw its way higher even with the Dollar pushing above the 81 level on the USDX. It bounced off the confluence of the 40 day and 50 day moving averages and shot up through the rising 10 day moving average before it ran into the selling resistance at the top of the recent trading range.

Gold is acting like it is in some sort of pressure cooker. It keeps building up pressure but cannot blow the lid off of the pot. Something makes me feel that when this market does break through the bullion bank selling at the top of this range, it is going to accelerate quite swiftly. The selling appears “unnatural” based on the recent behavior of the metal. I know that is totally subjective but that is how this thing feels. When you see gold shooting into all time highs in assorted currency terms and selling appearing at an easily pinpointed level on a price chart, you can tell that the selling is contrived and is being designed around technical objectives. From a fundamental perspective, no normal seller attempts to “fight” a market that so obviously wants to go higher.

Technically, if gold cannot plow through the bullion bank capping effort at today’s highs, the tendency will be for the metal to drop back down into the defined trading range and then see if the support moves higher to meet it.

Copper shot up sharply higher mainly in part to fears of supply disruptions associated with the terrible earthquake that hit Chile this past weekend. Funds did some selling up close to 3.50 when news filtered out that the mines would not be affected as much as some initially feared but the situation there is quite fluid and one cannot rule out further upside in copper.

Weakness in crude oil and in natural gas as well as the grains were a weight on the various commodity indices which is where some of the selling in gold was tied to due to algorithm-based orders.

The HUI managed to bump up within a couple of points of last week’s high before it ran into further selling. We still need to see this index climb above 420 to start an upside trending move.

While the Dollar was strongly higher at one point in the session, it did back down from above the 81 level again. Bearish divergence continues to display itself but because of the attacks being made on Europe’s currencies, the Dollar bears cannot break down the technical support levels on the charts. Last Friday’s Commitment of Traders data shows that massive speculative net Long position still at very lofty levels. Dollar bulls will need to close it above the 81.50 level or some of these shorter term oriented longs are going to bail out.

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

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Posted at 1:30 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

If possible, watch the Yen.  It will tell you more about what’s going on with the dollar than the dollar Index. The dollar is still weakening against what was once THE carry trade currency of choice.  This makes the dollar the carry trade currency of choice.  This illustrates a lack of respect for those handling the dollar.  You can take the Euro down only so far.

CIGA Eric

Stock Market Would Be Lost This Year Without Mergers
CIGA Eric

The majority of top performers in the S&P 500 (INDEX: .SPX) this year are as the result of a takeover, keeping a teetering stock market near the unchanged mark for 2010 in the face of fears of a global debt crisis, continued problems with the U.S. consumer and higher interest rates.

Good thing the world still has access to cutting edge commentary intended to redirect, direct, the lemmings towards the cliff. If misdirection is the only solution, than at least entertain us.

Hey! It’s all ball bearings nowadays. Now you prepare that Fetzer valve with some 3-in-1 oil and some gauze pads. And I’m gonna need ’bout ten quarts of anti-freeze, preferably Prestone. No, no make that Quaker State. Fletch (1985).

The market has consistently found direction from the dollar since 2000.

U.S. Dollar Index vs SPY 500:
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Source: finance.yahoo.com

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Dear Arlen,

The writer simply does not understand that hyperinflation is not an economic event. The writer has no knowledge of economic history.

It is loss of confidence in a currency that is the basis of EVERY experience of hyperinflation.

I am tired of those who publicly proclaim positions that are based on glib observation or semantic confusion like inflation versus deflation.

Regards,
Jim

The inflation boogeyman
Commentary: Hyperinflation is the least of our worries
Dec. 4, 2009, 12:01 a.m. EST

NEW YORK (MarketWatch) — Gold is hitting all-time highs amid growing fears of inflation.

Although the U.S. economy is still struggling with unemployment at about 10%, deeply indebted consumers, and millions of homeowners under water on their mortgages, many investors are worried about the return of that old bugaboo from the 1970s, inflation.

But some well-known investment gurus go further still: They say the U.S. is on the brink of hyperinflation, out-of-control price increases of astonishing magnitude.

The proponents of this view include Peter Schiff of Euro Pacific Capital and Marc Faber, editor of the Gloom Boom & Doom Report.

They have been dead right about some thing — the rise of emerging markets, the U.S. housing and debt bubble, and the commodities boom.

But about this, they are just about as wrong as can be.

Not that there won’t be inflation — I think that’s coming, although not until we see more signs of life in the economy.

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Jim Sinclair’s Commentary

If a guarantor guarantees more than the capacity to pay in an economic condition where guarantees can be called, bankruptcy of the guarantor is a clear and present danger.

- 2009 GAAP-Deficit Narrowed to $4.3 Trillion
- Total GAAP-Based Obligations of $71 Trillion
at Five-Times GDP Level / Accounting for
Government Bailouts Showed TARP Profit

"No. 282: Federal Government 2009 GAAP-Accounting "
http://www.shadowstats.com/

Dear Jim,

As a scientist by heart, your description is similar to the critical mass of nuclear chain reaction. Once critical mass is exceeded, there’s no stopping a fission reaction. When the government hands out money like free candy, without knowledge of its critical mass, it won’t be long before the reaction goes supercritical.  That is, the reaction increasing at an increasing rate. When this happens, the core melts down, and chaos ensues.

The first law of thermodynamics states that isolated systems, such as money, tend to go from states of order to disorder. No amount of regulation or hubris can stop it.

The posting above by Shadow Stats certainly confirms that.

Regards,
CIGA Eric

Dear Eric,

I am amazed how vocal Mr. Soros and Buffet have become. At their respective ages they should realize when enough money is enough.

It will be a shock for them to find out the gold market is bigger than both of them added together. China and India could have them both for lunch, yet it seems the older they get the louder they become.

Does a week go by when there is not an interview with one, sometimes both, in the same week?

Regards,
Jim

Buffett says economy recovering but at slow rate
CIGA Eric

Billionaire Warren Buffett said Monday the economy is improving but at a very slow rate and consumers are still not spending much, so job growth will remain slow.

What Buffett doesn’t say is that a consumption dependent economy will always struggle to produce high-paying jobs. This is why the housing market was/is so important in the United States. As home prices saw no limit behind easy credit and unrealistic assumptions, consumers used the illusion of wealth (home equity) to spend more from 2003 to 2007. The increased spending, however, did not create sustainable, high-paying jobs. That is why it was often dubbed as the job-less recovery by the media.

Today, we still focus on spending and consumption, and wait for any sign of price recovery in housing market as an indication of the return of the halcyon days of consumption-driven GDP growth. Securitization of debt and structured products collapse as all but stopped the credit Juggernaut. As a result, there will be no speedy return. As long as we consume and pay with paper, liquidity based recoveries will always be synonymous with jobless recoveries.

Source: finance.yahoo.com

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CIGA Arlen,

There is no inflation, so ipso factor, the dollar is still a safe haven and hyperinflation is absolutely out of the question.  I see this type of commentary a lot but consensus and group-think rarely breeds understanding.

Devaluation is a means, or better stated as effort, to ease the burden of a failing debt pile created during the previous expansion. Turn $100 into $1, and the $53T debt burden, which is actually much higher, doesn’t seem so burdensome at $530B devalued dollars.

The point the author misses is that the world of money (MONEY) does not see the world as black and white – inflation and deflation. Gold rises because MONEY realizes that devaluation does not occur within a vacuum. The public must be willing to accept incremental reductions in purchasing power spread over the decades of a depression. In most cases they will because devaluation works a lot like boiling a frog in a pot. Turn the heat up slow, and the frog won’t jump out. At least, that’s why they say. If public becomes increasingly reluctant to accept the reduction in purchasing power, future devaluation risks confidence on a large scale. The end result is hyperinflation.

A Weimar or banana-republic hyperinflation is still very unlikely. The former was intended, the latter is a product of who gives a damn. Before hyperinflation, there will be a transition to new and improved cut and paste currency that will buy time for the transition of power quietly from West to East.

CIGA Eric

Jim,

This Reuters article appeared early today stating, "The result of the ‘Greek tragedy’ is that… the Credit Default Swap (debt insurance) problem has come to the fore."

Germany was attempting to "identify speculators in Greek debt" to try to prevent them from profiting from a potential bailout of Greece!

During the course of Germany’s investigation, they contacted the Depository Trust and Clearing Corporation in an attempt to identify some of the speculators in Greek Credit Default Swaps. Whereupon an unidentified source stated, "This market is not transparent and it is very hard to see what’s going on… We cannot find any evidence that Greece is being shorted out of existence. Equally, you cannot prove the opposite."

In hopes of avoiding the necessity of a bailout, Germany’s Chancellor later today renewed the call for Greece to enact its ambitious austerity program aimed at cutting its budget deficit. Chancellor Merkel added that, "This will be the best way of avoiding further speculation against the euro."!!!!!

Germany’s well-intentioned but ill-conceived investigation obviously hit a brick wall.

As you said today, "Think of what it means to have the destroyers enriched by attacking currency after currency."

It’s abundantly clear that the Dark Side is winning hands down.

Best regards,
CIGA Black Swan

Germany Moves to Out Greek Debt Speculators
Mon Mar 1, 2010
By John O’Donnell and Ilona Wissenbach

BRUSSELS, March 1 (Reuters) – Germany has moved to identify speculators in Greek debt to try to prevent them from profiting from any bailout of the euro zone country’s ailing economy, a source with direct knowledge of the matter told Reuters.

The initiative by the country’s financial watchdog is part of delicate deliberations in Germany as to whether it should help bail out Greece, which is grappling with mounting debts.

"It would be bad if it were to emerge after a rescue that the money had gone into the pockets of speculators," the source told Reuters.

"The result of the ‘Greek tragedy’ is that the political environment has become such that the Credit Default Swap (debt insurance) problem has come to the fore."

The investigation by financial watchdog BaFin comes against a backdrop of worries over Greece’s future. It sends a warning to those trading insurance for Greek debt which, while legal, has been blamed for fuelling volatility – though it has so far failed to identify to what extent speculators are behind Greek debt price swings.

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European Economy Risks Decoupling From Global Growth Recovery
CIGA Eric

Europe’s economy may be coming unstuck from the global recovery as governments to the south of the region struggle to reverse budget deficits and consumers in the north pull back spending.

If that was the case, the US recovery would be coming unstuck from the global recovery as well. Today’s massive budget deficit, in excess of -10% of GDP, is only exceeded by the deficits produced after the United States entrance into World War II. File this news under tactical release to support the Euro assault.

Source: bloomberg.com

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European Economy Risks Decoupling From Global Growth Recovery
CIGA Eric

Europe’s economy may be coming unstuck from the global recovery as governments to the south of the region struggle to reverse budget deficits and consumers in the north pull back spending.

If that was the case, the US recovery would be coming unstuck from the global recovery as well. Today’s massive budget deficit, in excess of -10% of GDP, is only exceeded by the deficits produced after the United States entrance into World War II. File this news under tactical release to support the Euro assault.

Source: bloomberg.com

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Posted at 12:43 PM (CST) by & filed under Greg Hunter.

Dear CIGAs,

Many people I talk to and hear from are having a really hard time grasping how severe the real estate crisis is in America.  Let me sum up how bad the problem  is in one simple  sentence.  The real estate market (both residential and commercial) is the worst EVER!   According to Yale Economics Professor Robert Shiller, the real estate boom a few years ago was the biggest in history!  The bust we find ourselves in now will, also, be the biggest in history.

Take this comment I received from a USAWatchdog reader last week.  He asked,  “Are you preaching that I rent a house rather than get a mortgage? Because getting a mortgage puts me in debt for 30 years? No you wouldn’t say that because everyone knows that at least with a mortgage you are actually getting a house.”   The latest housing figures released just last Friday from the National Association of Realtors report home sales are down 7.2 percent in January.  In another report, prices are down an additional 10% in some regions of the country.  Yes, with a mortgage you will get a house, but how much of your down payment will be there in 2 or 3 years?

People keep asking if is this a good time to buy a home?   Shiller, also one of the founders of the Case-Shiller Home Price Index,  told USAWatchdog just last month in an exclusive interview, “Even if (interest) rates do not go up, prices can still go down.”  Guess what?—they did!  Shiller also stated that the housing market is “being supported by the government.”   Meaning, the government is printing money to buy bonds to artificially suppress mortgage interest rates.  What happens when that “support” stops?   You are going to hear another giant “thud” and it will, once again, be the real estate market.  

The commercial real estate market will be the next giant debt problem America will face.  In the next 5 years, $1.4 trillion in short term loans will need refinancing.  Things such as malls, office buildings, hotels, and other commercial real estate have fallen in value so much the bad debt will  likely take down 3,000 community banks.   That is 40% of the banking system!  Elizabeth Warren, Chairman of the Congressional Oversight Panel, says, “There will be significant bankruptcies among developers and significant failures among community banks.”  Warren talked about the coming commercial real estate problem below in a video recorded in mid February:

The rough ride in real estate will be very long.  Prices will not bottom until after 2013 at the very least.   What we have is not just a  problem in real estate–but a threat to the stability of the entire economy.  My advice, be conservative in your investments and protect your capital because you will need it before this financial crisis is over.

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Posted at 6:27 PM (CST) by & filed under In The News.

Dear Extended Family,

I believe the most important event at our Toronto CIGA meeting was the testimony of two attendees.

Two men spoke independently. One is a Canadian resident from Russia and the other from Poland.

Both said the same thing, "All the signs that preceded our inflation of more than 100% per year are here now in the West."

What more do you need to know?

Regards,
Jim

 

Jim Sinclair’s Commentary

Greece is a potential disaster greater than Lehman. About that there is no question.

The device of destruction is the same, OTC derivatives.

In no more than six weeks, most likely less, the EU must fish or cut bait as Greece will be out of money.

Germany can knock the most dangerous domino over if they wish can.

The failure of Greece will lead to a sovereign state domino debt syndrome that will increase the distrust of currencies and increase the demand for gold.

Bailouts will equal QE to infinity.

Either way gold remains the only currency without liabilities. It is game over either way.

Jim Sinclair’s Commentary

Ask yourself the following two questions:

1. Is California the only state of the USA that will experience bankruptcy?

2. Is Greece the only nation to have dealt in deceptive OTC derivatives?

California is a greater risk than Greece, warns JP Morgan chief
Jamie Dimon, chairman of JP Morgan Chase, has warned American investors should be more worried about the risk of default of the state of California than of Greece’s current debt woes.
By James Quinn, US Business Editor in New York
Published: 8:20PM GMT 26 Feb 2010

Mr Dimon told investors at the Wall Street bank’s annual meeting that "there could be contagion" if a state the size of California, the biggest of the United States, had problems making debt repayments. "Greece itself would not be an issue for this company, nor would any other country," said Mr Dimon. "We don’t really foresee the European Union coming apart." The senior banker said that JP Morgan Chase and other US rivals are largely immune from the European debt crisis, as the risks have largely been hedged.

California however poses more of a risk, given the state’s $20bn (£13.1bn) budget deficit, which Governor Arnold Schwarzenegger is desperately trying to reduce.

Earlier this week, the state’s legislature passed bills that will cut the deficit by $2.8bn through budget cuts and other measures. However the former Hollywood film star turned politician is looking for $8.9bn of cuts over the next 16 months, and is also hoping for as much as $7bn of handouts from the federal government.

Earlier this week, John Chiang, the state’s controller, said that if a workable plan to reduce the deficit and increase cash levels is not reached soon, he will have to return to issuing IOU’s, forcing state workers to take additional unpaid leave and potentially freezing spending.

Last summer, California issued $3bn of IOU’s to creditors including residents owed tax refunds as a way of staving off a cash crisis.

"I can’t write checks without money; that’s against the law. My main goal is to keep the state afloat, but I won’t be able to do it without the help of new legislation," said Mr Chiang.

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