In The News Today

Posted at 4:52 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

  1. If today does not get you wild about the Gold Bank’s unending desire to pick your pocket then you are simply numbed to the experience.
  2. The Gold Banks are losing their rich uncle so today was an act of bravado to show us. It was not oil.
  3. If you have had enough of the gold banks then push back as per yesterday’s second review of taking delivery either of the kilo or 100oz. bars.
  4. Gold is a currency that moves inverse to the US dollar, and will in the main remain so. A change in percentage moves with gold ahead of the dollar in the inverse is possible in 2009.
  5. The dollar rally has been totally technical in terms of international flows of currency that absolutely has no legs to hold it up. Harry Schultz’s call on the USDX topping at or near .88 looks quite good
  6. As far as the depth of the problems goes, it is still bottomless. The following article speaks to this.
  7. The Golden Age of the Financial Criminal, marked by flagrant violations of law and regulations, may be reined in with some spectacular trials.

A credit crater too big to fill?
As the movement of money across borders comes to a grinding halt, governments can only manage the decline. Don’t be surprised to see markets roll back to 1995 levels — or lower.
By Jon Markman

Despite a weeklong surge in stocks, it’s becoming increasingly clear that credit has suffered a catastrophic setback.

It’s as if a set of asteroids hit Manhattan, London and Tokyo, carving a massive hole in the architecture of finance. The initial buildings in the impact crater, Lehman Bros. (LEHMQ), Bear Stearns and Northern Rock, were quickly incinerated. But now the toxic rain and tsunamis that were kicked up are rolling onto the survivors in waves and cutting off their air supply.

New data from world money centers suggest the movement of money around the globe has simply ground to a halt, as institutions in the United States, Europe and Asia that are receiving taxpayer dollars from governments are socking it away to shore up their balance sheets, reserve against liabilities expected in the near future and sustain their unprofitable operations.

“Governments are not really trying to save the system anymore,” said Satyajit Das, a banking expert in Sydney, Australia. “They now realize that’s impossible. They are just trying to manage the decline.”

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Jim Sinclair’s Commentary 

Are you sure your Treasury instrument money market fund is in US Treasury instruments, or are they in OTC derivative based on Treasury instruments? I wager you the latter. The problems out there have no cure without consequences more dangerous than the problems themselves. 

“She said that scrutiny by the SEC and the Fed, and widespread investigations into short-selling practices, are driving the industry to rein in questionable practices with Treasuries.” 

Delivery failures plague Treasury market
Total hit a record $2.29 trillion as of Oct. 1
By Dan Jamieson
October 19, 2008, 6:01 AM EST

The credit crisis is causing a growing number of delivery failures with Treasury securities.

The latest data from the Federal Reserve Bank of New York showed that cumulative failures hit a record $2.29 trillion as of Oct. 1. The federal settlement period is T+1 (trade date plus one day).

The outstanding U.S. public debt is $10.3 trillion.

“Current [fail] levels are at historic levels,” said Rob Toomey, managing director of the Securities Industry and Financial Markets Association’s funding and government and agency securities divisions. “There’s been significant flight to quality” with the market turmoil, he said.

With the strong demand for Treasury securities, “some of the entities that bought Treasuries are not making them available in the [repurchase] market, which is the traditional way to get them,” Mr. Toomey said.  

Unlike some past bouts with high failure rates that involved particular bond issues, the current high fails involve all types of maturities, he said.

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Jim Sinclair’s Commentary

Someone with ethics and understanding would take exception to flushing FASB 157 down the toilet. Doing so would allow Wall Street to go back to good old lying their asses off with regards to the valuation of OTC derivatives. Schiller can look back with 20/20 vision but it is a loser looking forward. Nobody and no formula has a clue what 2011 will look like. Trashing FASB 157 will not simply set back reform, it will kill it stone cold before arrival. Nothing to the Wall Street creeps is temporary. Crime is permanent.

Mark-to-market manipulation
Commentary: Efforts to change accounting rules would set back reform
By David Weidner, MarketWatch
Last update: 12:01 a.m. EST Nov. 4, 2008

NEW YORK (MarketWatch) — Mark-to-market — or fair-value — accounting has one big problem: Some very powerful people are trying to change it.

A movement spurred by bankers including Aubrey Patterson, chief executive of Bancorpsouth Inc. (BXS) and Wall Street power brokers including Blackstone Group (BX) Chief Stephen Schwarzman are arguing for at least a temporary suspension of Financial Accounting Standards Rule 157.

Patterson and other supporters argued for the rule’s suspension in a Securities and Exchange Commission roundtable Oct. 29. Other critics of FAS 157 included Damon Silvers, AFL-CIO general counsel, and Bradley Hunkler, an insurance executive from Western & Southern Life.

Simply put, these guys want the government to stop requiring mark-to-market accounting so the financial industry can put blinders on to the deep trouble that lies on its balance sheets. Not surprisingly, the proponents of a suspension would also apparently benefit from it.

For guys like Patterson, it would mean his bank wouldn’t have to take big charges each quarter to build reserves. Bancorpsouth increased its reserves by 50% to $16.3 million to gird against loan losses at the end of the third quarter.

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Jim Sinclair’s Commentary

Recall what I told you about GE being a major entity in credit default derivatives?

In reading this article, keep firmly in mind no matter how loud the Geeks scream there is no question that bankruptcy takes nominal value to full value. The Geek BS does not work when one party to the special performance contract fails and cannot perform.

Credit Swaps Top $33 Trillion, Depository Trust Says
By Shannon D. Harrington 

Nov. 4 (Bloomberg) — Credit-default swaps totaling $33.6 trillion are outstanding on government debt, corporate bonds and asset-backed securities worldwide, the Depository Trust & Clearing Corp. said in a report that gives the broadest data yet on the unregulated market.

After canceling out overlapping trades, Italy’s government debt tops the list with $22.7 billion in contracts, the report on DTCC’sWeb site today shows. A net amount of $16.6 billion of contracts are outstanding on Spain; $12.4 billion on Deutsche Bank AG, Germany’s largest bank; and $12.1 billion on General Electric Co.’s finance arm, GE Capital Corp., the report shows.

“Publishing this data will provide greater transparency in a critical market,” Tim Ryan, the head of the Securities Industry and Financial Markets Association in Washington said in a statement today. “This is an important initiative upon which the industry will continue to build.”

Before netting, Turkey topped the list with $188.6 billion in contracts, and dropped to $7.6 billion after redundant trades were subtracted. On a gross basis, $15.4 trillion of transactions were linked to individual corporate, sovereign and asset-backed bonds, and about $14.8 trillion was tied to indexes. The New York-based DTCC estimates it sees about 90 percent of all trades.

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Jim Sinclair’s Commentary

This has to be a joke of some kind. In 2006 the cancer of OTC derivatives was growing like a locust storm at Bear Stearns.

NY Fed hires former Bear Stearns chief risk officer
Tue Nov 4, 2008 9:29am EST

NEW YORK, Nov 4 (Reuters) – The Federal Reserve Bank of New York has hired the former chief risk officer of Bear Stearns Cos, Michael Alix, to advise on bank supervision, according to a release in the Fed’s Web site.

Alix will serve as a senior advisor to William Rutledge in the Bank Supervision Group and his appointment is effective Nov. 3, according to the release dated Oct. 31

At Bear Stearns, an investment bank that collapsed in March and has become hallmark of the global credit crisis, Alix served as chief risk officer from 2006 to 2008 and global head of credit risk management from 1996 to 2006.

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 Jim Sinclair’s Commentary

The financial saviour of the planet, the US Federal Reserve, may need to be saved itself much sooner than you or they imagine. A planetary Weimar – it is possible going towards probable.

What Happens when Countries Go Bankrupt?
By SPIEGEL Staff

First it was mortgage lenders. Then large banks began to wobble. Now, entire countries, including Ukraine and Pakistan, are facing financial ruin. The International Monetary Fund is there to help, but its pockets are only so deep.

No, Alexander Lukyanchenko told reporters at a hastily convened press conference last Tuesday, there is “no reason whatsoever to spread panic.” Anyone who was caught trying to throw people out into the street, he warned, would have the authorities to deal with.

Lukyanchenko is the mayor of Donetsk, a city in eastern Ukraine with a population of a little more than one million. For generations, the residents of Donetsk have earned a living in the surrounding coalmines and steel mills, a rather profitable industry in the recent past. Donetsksta, a local steel producer, earned €1.3 billion ($1.65 billion) in revenues last year.

But last Tuesday the mayor, returning from a meeting with business leaders, had bad news: two-thousand metalworkers would have to be furloughed. Lukyanchenko doesn’t use the word furlough, instead noting that the workers will be doing “other, similar work.” But every other blast furnace has already been shut down, and one of the city’s largest holding companies is apparently gearing up for mass layoffs.

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Jim Sinclair’s Commentary

Now the fun really starts because the statute of limitations hasn’t stopped. I am bullish on public companies that specialize in building Federal prisons and bearish of Greenwich, CT mansions valued over $20,000,000.

Now That Election Is Over, Its Back To The Crisis
Danny Schechter
Posted November 4, 2008 | 06:55 PM (EST)

The election is all but over, but the debate over who is responsible for the financial crisis is just beginning to become more intense.

We know that the FBI has opened a criminal investigation of 26 companies, indicted 400 mortgage scammers and started 1400 criminal white collar cases There are 40 task forces allegedly looking into the fraud at the heart of the subrprime pyramid scheme.

But now we also know that the Bush Administration has made a the prosecution of white collar crime a lesser priority with more agents tasked to chase terror suspects than the men and women who brought our economy down.

Reported Newser:

“A short-staffed FBI is laboring to keep up with white collar crime linked to the nation’s financial crisis, the New York Times reports. FBI officials predicted millions of dollars’ in mortgage fraud years ago, but the Justice Department wanted agents focused on counter-terror. When the FBI warned of a fraud “epidemic” in 2004, only 15 of its 13,000 agents were on the case.”

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