In The News Today

Posted at 4:21 PM (CST) by & filed under In The News.

Dear Friends,

This is not making a direct comparison, but instead speaks to my colleagues that believe the only way velocity of money increases is by a turn for the better in business activity. I will give them that this is the scenario wherein increased monetary stimulus transmits into inflation. What they are ignoring is another more likely scenario which is a significant depreciation of currency, in a short period of time, which we know can look like a long fishing line (straight down). This scenario produces much more intense inflation in the midst of a recession or depression.

The next possibility is significant fiscal stimulation directly on the heels of monetary stimulation which can result in some degree of either alternative listed above.

Regards,
Jim

Global Crisis? This is the real crisis!
Sunday, October 26th, 2008

If you think that the current economic crisis is something that has never happened in history before, you may be wrong! After the collapse of the agriculture sector in Zimbabwe in 2000, the inflation in that country skyrocketed to 231 million percent a year! Just think about it – 231 000 000%! Unemployment went up to 80% and a third of country’s population left it.

Let`s now have a look at the photos that you may not be able to see anywhere else in the world.

Here is a boy getting change in 200 000 dollar notes!

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Jim Sinclair’s Commentary

The article below discuses what could easily have been the quasi-Iceland event.

Be assured it will come to a significant country after a downgrade of their Federal debt.

Note in this article in one dynamics sentence they say Pakistan twice.

IMF bailout lifts Hungarian markets
By David Jolly
Wednesday, October 29, 2008

Hungarian stocks and the currency soared Wednesday after the country secured more than $25 billion in backing from global institutions led by the International Monetary Fund.

Dominique Strauss-Kahn, the IMF managing director said late Tuesday in Washington that a deal to provide Hungary with a €12.5 billion, or $15.7 billion, 17-month stand-by loan arrangement had been reached. The EU said it was ready to provide a loan of €6.5 billion or about $8.1 billion, while the World Bank agreed to provide €1.0 billion, or $1.3 billion.

“The Hungarian authorities have developed a comprehensive policy package that will bolster the economy’s near-term stability and improve its long-term growth potential,” Strauss-Kahn said in the statement. “At the same time it is designed to restore investor confidence and alleviate the stress experienced in recent weeks in the Hungarian financial markets.

The package must still go to the IMF’s executive board for approval in early November.

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Jim Sinclair’s Commentary

From the viewpoint of a person on the executive committee of a NYSE brokerage firm (when that meant something) it is a little hard to believe that no one in this institution had any idea of some massive OTC derivative entered into by a trader.

Here is a neat idea. The rub is if that was done in the US, they would have to empty all maximum-security prisons and re-open Alcatraz in order to hold the OTC derivative gang. Maybe this will happen in a Democratic Administration. Stay tuned.

Those 29 year olds with hundreds of millions of dollars in their Greenwich, CT air conditioned indoor private tennis courts might consider it a good idea to check out to a non-extraditing country and instantly transfer their funds out of the US.

Caisse d’Epargne trader is held

French police have detained a trader for questioning over the loss of 751m euros (£601m) at savings bank Caisse d’Epargne, judicial officials say.

He was taken into custody as part of an inquiry into whether anyone was criminally liable for the loss, made as a result of complex derivative trades.

The bank initially put the loss at 600m euros, but has since revised it upward.

The bank’s top three executives have all resigned since the loss came to light earlier this month.

Chief executive Charles Milhaud stood down after saying he accepted full responsibility for the lost cash and is expected to leave without a pay-off.

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Jim Sinclair’s Commentary

I will give you three guesses who and what are totally responsible for the destruction of mankind, not with a gun but with a scam. Subprime loans, my arse!

Gulf Bank head steps down after losses on derivatives
By Robin Wigglesworth in Abu Dhabi
Published: October 29 2008 02:00 | Last updated: October 29 2008 02:00

The crisis in Kuwait’s banking sector deepened yesterday when the chairman of Gulf Bank resigned over derivatives losses and Fitch Ratings downgraded the bank, the country’s second biggest lender.

Kutayba Al Ghanim replaced his brother, Bassam Al Ghanim, as chairman of Gulf Bank after depositors started to withdraw deposits from the stricken lender on Sunday – the first known bank-run in the region during the crisis – even though the Kuwaiti central bank pledged to support the bank and guarantee all deposits in the country.

Fitch Ratings downgraded Gulf Bank’s individual rating to D from B/C. While affirming the long-term issuer default rating of A+, the agency placed the bank under review for individual downgrades for a “serious lapse” in risk management and possible capital base erosion from “potentially large losses”.

Adding to the bank’s woes, Moody’s Investors Service yesterday placed Gulf Bank’s Aa3 long-term local and foreign-currency deposit ratings, and C bank financial-strength rating on review for possible downgrade. The Prime 1 short-term ratings were not affected, according to the credit rating agency.

“It is completely understandable. I wouldn’t trust them [the ratings agencies] if they hadn’t done this,” said a Gulf Bank spokesman.

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Jim Sinclair`s Commentary

If required, the Fed will pay the many kinds of entities now at the begging bowl loan window to borrow money. Soon a major fiscal stimulation bill requiring more drafts on the Fed’s permanent overdraw facility will be initiated.

I still have one pressing question: Why did the Fed let Lehman go?

Fed Cuts Rate to 1% to Avert Prolonged Recession
By Craig Torres

Oct. 29 (Bloomberg) — The Federal Reserve cut its benchmark interest rate by half a percentage point to 1 percent, matching a half-century low, in an effort to avert the worst U.S. economic downturn in the postwar era.

“Downside risks to growth remain,” the Federal Open Market Committee said today in a statement in Washington. “Recent policy actions, including today’s rate reduction, coordinated interest-rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth.”

Central bankers worldwide are trying to revive credit and stop a self-reinforcing downturn in consumer spending and bank lending from triggering a global recession. Today’s decision follows the half-point reduction the Fed coordinated with the European Central Bank and four other central banks on Oct. 8. Borrowing costs were pared today in Norway and China.

The U.S. economy shrank at a 0.5 percent annual rate last quarter, the most since the 2001 recession, the Commerce Department’s report on gross domestic product will probably show tomorrow. Economists expect the slump to persist in the fourth quarter, according to the median estimate.

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Jim Sinclair`s Commentary

If anyone has the potential of locking on to the real why of this collapse, OTC derivatives, it is Andrew Cuomo.

New York Demands Bonus Pay Data From Citigroup, Wells
By Karen Freifeld

Oct. 29 (Bloomberg) — New York Attorney General Andrew Cuomo sent letters to JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and six other banks that received taxpayer bailout funds, demanding bonus information for top management.

Cuomo said he wanted a “detailed accounting” of expected payments to top executives in the “upcoming bonus season,” including information on the expected bonus pool for this year, according to a copy of the letters sent today. He requested information on bonuses from before and after the banks knew they would receive funds from the Troubled Asset Relief Program.

Cuomo told the boards of directors he thought they were in the best position to respond to the requests because top management has a “significant interest in the size of the bonus pools.” He said he would have “grave concerns” if the expected bonus pool increased in any way as a result of the receipt of taxpayer funds.

“In this new era of corporate responsibility we are entering, boards of directors must step up to the plate and prevent wasteful expenditures of corporate funds on outsized executive bonuses and other unjustified compensation,” Cuomo wrote in the letter.

The other banks are Goldman Sachs Group Inc., Bank of New York Mellon Corp., Merrill Lynch and Co., Morgan Stanley, State Street Corp. and Bank of America Corp. Representatives of the nine firms declined to comment or couldn’t immediately be reached for comment.

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Jim Sinclair`s Commentary

What will the US Treasury fail to guarantee? Lenders will never voluntarily give borrowers any break.

Treasury, FDIC Said to Craft Plan to Curb Foreclosure
By Alison Vekshin and Robert Schmidt

Oct. 29 (Bloomberg) — The U.S. Treasury and the Federal Deposit Insurance Corp. are considering a plan that may provide at least $500 billion in government guarantees for troubled mortgages, according to people familiar with the matter.

The program, which might help millions of homeowners refinance into affordable loans, would require lenders to restructure mortgages based on a borrower’s ability to repay. Under one option, the industry would keep lower monthly payments for five years before raising interest rates, the people said.

FDIC Chairman Sheila Bair discussed the program today at an international deposit insurers conference in Arlington, Virginia, without offering details. “A framework is needed to modify loans on a scale large enough to have a major impact,” Bair said.

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Jim Sinclair`s Commentary

Recall our recent discussion on why gold is the only guarantee of your financial future saying that retirement programs are NO guarantee. This is prolific even if not yet admitted to.

Lockheed, Ryder Drain Cash as Crisis Hammers Pensions
By Pat Wechsler and Edmond Lococo

Oct. 29 (Bloomberg) — A trade group whose members include Lockheed Martin Corp., Dow Chemical Co. and General Motors Corp. is pressing Congress to help close a record $200 billion deficit in U.S. pensions created by this month’s global stock-market collapse.

The Committee on Investment of Employee Benefit Assets is kicking off a lobbying effort today to delay provisions of the Pension Protection Act that it says will force companies to drain cash flow to comply with funding rules set to take effect next year.

“This will be real money that companies will have to come up with,” said Judy Schub, managing director of the Bethesda, Maryland-based group, which represents 110 of the nation’s largest retirement plans holding almost half of U.S. assets. “The law will be forcing people to be taking money out of operations at the worst possible time.”

Aetna Inc., the third-largest U.S. health insurer, said today that pension expenses caused by stock market declines will lop 30 cents to 40 cents a share off next year’s operating earnings.

Ryder System Inc.’s pension contributions will “significantly increase in 2009” and force “cost management” to protect profit, Chief Executive Officer Gregory Swienton told a conference call Oct. 22. The Miami-based, truck-leasing company’s plan had $1.5 billion in assets in 2007 and was underfunded by $1 million, according to Standard & Poor’s Corp.

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