In The News Today

Posted at 3:17 PM (CST) by & filed under In The News.

Dear CIGAs,

FLASH COMMUNICATION:

Sir Richard Russel names Gold the "Ultimate Cash"

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Jim Sinclair’s Commentary

The key element of gold future strength ($1650) is the fact that all the financial needs of any entity that threatens the social order internationally will be met with bailout funds devoid of limits.

GM Pensions May Be ‘Garbage’ With $16 Billion at Risk
By Holly Rosenkrantz

April 8 (Bloomberg) — Den Black, a retired General Motors Corp. engineering executive, says he’s worried and angry. The government-supported automaker is going bankrupt, he says, and he’s sure some of his retirement pay will go down with it.

“This is going to wreck us,” said Black, 62, speaking of GM retirees. “These pledges from our companies are now garbage.”

As the biggest U.S. automaker teeters near bankruptcy, workers and retirees like Black are bracing for what may be $16 billion in pension losses if the Pension Benefit Guaranty Corp. has to take over the plans, according to the agency. As many as half of GM’s 670,000 pension-plan participants might see their benefits trimmed if that happened, an actuary familiar with the company’s retirement programs estimates.

The possibility that GM might dump its pension obligations is likely to intensify debate over the treatment of executives of companies that receive U.S. aid. GM Chief Executive Officer Rick Wagoner, ousted by the Obama administration last month, may receive $20.2 million in pensions, according to a regulatory filing.

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Fed Saw Downside Risks Predominating at March Meeting

April 8 (Bloomberg) — Federal Reserve officials feared the U.S. economy might fall into a self-reinforcing cycle of rising unemployment and slumping business and consumer spending, making credit tighter in a weak financial system, minutes of the Federal Reserve’s March meeting show.

“Participants expressed concern about downside risks to an outlook for activity that was already weak,” minutes of the March 17-18 meeting released in Washington said. “Credit conditions remained very tight, and financial markets remained fragile and unsettled, with pressures on financial institutions generally intensifying.”

The outlook prompted the Federal Open Market Committee in a unanimous vote to boost its open-market purchases of bonds by $1.15 trillion, continuing its unprecedented increase in money supplied to the economy. The U.S. central bank has used its own balance sheet to provide financing for markets in commercial paper, asset-backed securities and mortgage bonds, markets it deems critical for financial stability and economic recovery.e

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Jim Sinclair’s Commentary

It is not whether or not Bernanke’s plans succeed, it is the consequences of the monetary and in time fiscal actions taken that are the granite foundation of the gold price at $1650 or higher.

There is no practical solution that will permit the draining of the degree of liquidity already injected into the international monetary system. This concept is in place already, not even considering the additional funds that will be required over the next two years.

Monetary inflation is always followed by price inflation entirely independent of consideration of the level of business activity.

The two hyperinflations in the USA, the Continental and the Confederate Dollar, as well as all historically same/similar situations were currency events, not economic events. All occurred in recessionary to depression business conditions. The most recent example of this concept is the Zimbabwe dollar.

This is fact but brings no respect to the proponent that says nothing changes. It simply wears different attire.

Bernanke’s Deflation Preventing Scorecard

In case no one is keeping track, Bernanke has now fired every bullet from his 2002 “helicopter drop” speech Deflation: Making Sure "It" Doesn’t Happen Here. Bernanke’s Scorecard Here is Bernanke’s roadmap, and a “point-by-point” list from that speech.

1. Reduce nominal interest rate to zero. Check. That didn’t work…

2. Increase the number of dollars in circulation, or credibly threaten to do so. Check. That didn’t work…

3. Expand the scale of asset purchases or, possibly, expand the menu of assets it buys. Check & check. That didn’t work..

4. Make low-interest-rate loans to banks. Check. That didn’t work…

5. Cooperate with fiscal authorities to inject more money. Check. That didn’t work..

6. Lower rates further out along the Treasury term structure. Check. That didn’t work…

7. Commit to holding the overnight rate at zero for some specified period. Check. That didn’t work…

8. Begin announcing explicit ceilings for yields on longer-maturity Treasury debt (bonds maturing within the next two years); enforce interest-rate ceilings by committing to make unlimited purchases of securities at prices consistent with the targeted yields. Check, and check. That didn’t work..

. 9. If that proves insufficient, cap yields of Treasury securities at still longer maturities, say three to six years. Check (they’re buying out to 7 years right now.) That didn’t work…

10. Use its existing authority to operate in the markets for agency debt. Check (in fact, they “own” the agency debt market!) That didn’t work…

11. Influence yields on privately issued securities. (Note: the Fed used to be restricted in doing that, but not anymore.) Check. That didn’t work…

12. Offer fixed-term loans to banks at low or zero interest, with a wide range of private assets deemed eligible as collateral (…Well, I’m still waiting for them to accept bellybutton lint & Beanie Babies, but I’m sure my patience will be rewarded. Besides their “mark-to-maturity” offers will be more than enticing!) Anyway… Check. That didn’t work…

13. Buy foreign government debt (and although Ben didn’t specifically mention it, let’s not forget those dollar swaps with foreign nations.) Check. That didn’t work…

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Jim Sinclair’s Commentary

This is unusual in fighting between the Treasury and the FDIC over the substance of the upcoming Bank Stress Tests. The following are hard words: "It’s a sham," one source told The Post, describing the test as an "open-book, take-home exam" that doesn’t actually work."

FDIC BAIR(S) TEETH TAKES TREASURY’S TIM TO TASK ON TALF STRESS TEST
By MARK DeCAMBRE
Last updated: 11:13 am April 8, 2009

The stress tests the government are about to conduct on some of the nation’s largest banks is being blasted by insiders at Sheila Bair’s Federal Deposit Insurance Corp., who say it’s a pointless exercise that’s more sizzle than steak.

The FDIC’s basic beef with the stress test is that it is not a credible way to assess how much additional cash beaten-down banks will need to weather what many Wall Street experts predict will be more losses in the coming months.

The tests are conducted by the Treasury Department and the Federal Reserve on the nation’s 19 biggest banks, including behemoths Citigroup, Bank of America and JPMorgan Chase.

"It’s a sham," one source told The Post, describing the test as an "open-book, take-home exam" that doesn’t actually work.

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Jim Sinclair’s Commentary

Many of you have bought the case that the Euro zone has financial problems infinitely more serious than those of the USA. Few are focused on the simple supply of dollars hiding behind the scene awaiting their appearance on the Forex market even in a depression.

The dollar is in the process of declining in use and increasing in supply. I see this generational in nature.

Is the Almighty Dollar Doomed?

"There is also the possibility that the dollar, after its recent show of strength, will again weaken in value against other major currencies, eroding its attractiveness as a reserve currency. Confidence in the health of the U.S. economy, and therefore the U.S. dollar, could plunge because of continued large U.S. current-account deficits, an unstable banking sector and a recession-busting, expansionist monetary policy. The budget deficit, which the Congressional Budget Office estimates will reach $1.8 trillion this fiscal year, or 13% of GDP, is reaching heights not seen since World War II. (See the top 10 worst business deals of 2008.)"

I got an unexpected lesson in the power of the U.S. dollar during a visit to Tashkent, the dreary capital of Uzbekistan, several years back. While heading into town from the airport, my babbling taxi driver kept one hand (barely) on the steering wheel while his other shoved a stack of local currency, the som, into my face. He insistently urged me to trade the money for dollars. After checking in at the grim Hotel Uzbekistan, a nattily clad porter showed me and my wife to a room, fiddled with a broken TV set, and then reached into his jacket pockets for large bricks of som. He, too, persistently begged me for greenbacks. In Uzbekistan, the dollar ruled.

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Jim Sinclair’s Commentary

The demand for physical gold grows and grows, as the COMEX paper gold supply commands price. That is simply wrong. The only correction is taking delivery out of the COMEX warehouse on a continuous basis.

Going for gold: How the world’s mints are coining it
By Sarah Marsh in Vienna and Jan Harvey in London

The world’s mints are coining it as unprecedented numbers of savers search for safer investments

A few years ago his visits to the mint, founded more than 800 years ago, might have seemed eccentric. No longer. From the Russian Georgy Pobedonosets to the American Eagle, gold coin production is being cranked up in mints around the world to satisfy customers believing the assets may be immune to the global financial crisis.

Russia’s state-controlled Sberbank says it has never seen such strong demand for investment coins. In Australia, the Perth Mint had to suspend new orders for gold coins because it could not keep pace with overseas demand. And, in America, the US Mint says sales of its one-ounce American Eagle gold bullion coins rocketed by more than 400 per cent to 710,000 ounces in 2008. "The demand for gold and silver," said US Mint spokeswoman Carla Coolman, "has been unprecedented."

Austria’s Philharmonic, named after the Vienna Philharmonic Orchestra, was the world’s best-selling gold coin in the last quarter and sales soared 544 per cent in the first two months of 2009. "There is no sign of demand abating," Austrian Mint’s marketing director Kerry Tattersall said. Sales this year are expected to exceed 2008’s record levels. "At present, production is struggling to keep up with demand."

Hans Dieter Rauch, who sells both collectors’ and investors’ coins in his boutique on Graben, one of Vienna’s most exclusive shopping streets, said revenues rose 300 per cent last year. "It’s the man in the street, not particularly rich people but normal citizens like you and me," said Mr Rauch, 65, monitoring the fluctuating price of gold on a screen in his back room.

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Jim Sinclair’s Commentary

Public and private, pension fund failure is the stuff that social unrest is made of.

Investment losses hit public sector pensions
By Deborah Brewster in New York
Published: April 7 2009 19:59 | Last updated: April 7 2009 19:59

The crisis facing pension plans for US state and municipal employees is deepening as investment losses deplete the resources of retirement funds for teachers, police officers, firefighters and other local government workers.

The largest state and municipal pension plans lost 9 per cent of their value of more than $2,000bn in the first two months of this year, according to data from Northern Trust. That followed a loss of 30 per cent in 2008, equal to about $900bn. Smaller funds, which underperform the larger ones, lost more, experts say. The losses have left retirement plans about 50 per cent funded – that is, they have only half the money needed to cover commitments to 22m current and former workers, experts say. State governments typically put the funding figures closer to 60-70 per cent, although most experts use different calculations.

“There is a massive national underfunding problem,” said Orin Kramer, chairman of the New Jersey pension fund. ”

Unlike company pension plans, state and municipal retirement funds have no federal guarantee fund. This has led to predictions of benefit cuts and possible federal intervention.

“The federal government will get involved, without question,” said Phillip Silitschanu, analyst at Aite Group, a consultancy. “They could provide federal loans, or demand cutbacks as a condition of stimulus money, or there could be a federalisation of some of these pensions.”

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Jim Sinclair’s Commentary

We all know this.

Gold ‘will exceed $1000’, bullion dealer predicts
2009/04/08 
Johannesburg – Gold prices could “easily re-attain the $1000-mark and may well push up towards and perhaps even through the $1100 barrier in the coming months”, precious metals consultancy GFMS predicted yesterday.

“The price may have pulled back a fair bit from the February highs, but that was largely just the market‘s reaction to jewelry demand crumbling and scrap booming,” said GFMS executive chairman Philip Klapwijk.

“It‘s far from game over for investors, and it will be that crowd which sets the price alight,” Klapwijk said.

Releasing its latest review on the gold market, Gold Survey 2009, GFMS singled out the fiscal and monetary policies currently being enacted, especially by the US administration, as the root cause of gold‘s potential.

GFMS also expects central banks to be reluctant to raise interest rates while the prospects for economic growth are shaky and says that the solidity of the US dollar has to be called into question, chiefly as a result of doubts over others‘ desire or ability to continue financing an explosion in US government debt.

“Strength in investment will certainly be needed to overcome weakness in the fundamentals.

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Jim Sinclair’s Commentary

Yes, a more transparent world, modestly delayed.

UPDATE 1-US to delay bank test results for earnings-source
Tue Apr 7, 2009 1:09pm EDT

WASHINGTON, April 7 (Reuters) – The U.S. Treasury Department is planning to delay the release of any completed bank stress test results until after the first-quarter earnings season to avoid complicating stock market reaction, a source familiar with Treasury’s discussions said on Tuesday.

The Treasury is still talking about how results of the regulatory stress tests on the 19 largest U.S. banks will be released, and may disclose them as summary results that are not institution-specific, the source said.

The government is testing how the largest banks would fare under more adverse economic conditions than are expected in an attempt to assess the firms’ capital needs. The tests are due to be completed by the end of April, but Treasury has said they may be finished before then.

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Jim Sinclair’s Commentary

You can be sure there will be many more trips to the bailout well.

Fed’s Fisher says U.S. economy grim
Wed Apr 8, 2009 4:25am EDT
By Leika Kihara

TOKYO, April 8 (Reuters) – The U.S. economy is grim, and the Federal Reserve is "duty bound to apply every tool" to clean up the financial system and clear a path for a return to sustainable growth, Richard Fisher, president of the Dallas Fed, said on Wednesday.

But he said monetary policy alone would not be enough to resuscitate the economy, adding fiscal stimulus was critical in providing a spark for U.S. growth.

"Monetary policy accommodative techniques are necessary but insufficient to the task," Fisher told a symposium hosted by a private think tank in Tokyo.

"The trick to fiscal policy is to provide the spark, to provide the right incentives, get the small and medium-sized firms create jobs again, create dynamism in the economy without planting the seeds of inflation."

Fisher, who is not a voting member on the Fed’s policy-setting committee this year, said the U.S. economy probably shrank in the just-ended first quarter of 2009 at a rate similar to the 6.3 percent annual decline posted in the fourth quarter of 2008. He gave no timeline for a potential recovery.

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Jim Sinclair’s Commentary

Keep this in mind as you listen to the party line.

Financial Crisis ‘Far From Over,’ Panel Says
Govt. May Spend More than $4 Trillion but Economy Faces ‘Prolonged Weakness,’ Oversight Panel Reports
By CHARLES HERMAN and ALICE GOMSTYN
ABC NEWS Business Unit
April 7, 2009

Though some economic measures are improving, the financial crisis "is far from over" and "appears to be taking root in the larger economy."

This, despite the government’s commitment to spend trillions of taxpayer dollars on a massive bailout of the financial system.

These were the findings released in a report today by the Congressional Oversight Panel, the body charged with overseeing the government’s Troubled Asset Relief Program, the $700 billion plan aimed at bailing out the country’s financial sector.

"We still have a long way to go. A very long way," Elizabeth Warren, the Harvard Law School professor who chairs the panel, said in an interview today with Bloomberg News.

The panel reported that the government has spent, lent or set aside more than $4 trillion through the Troubled Asset Relief Program, the Federal Reserve and the Federal Deposit Insurance Corporation.

Today, the "credit markets no longer face an acute systemic crisis in confidence that threatens the functioning of the economy," the report said.

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Jim Sinclair’s Commentary

Take a sharp pencil to any of this and another conclusion surfaces. The FDIC will be granted whatever funds are required. The implication here speaks only to more printing of money but that is what quantitative easing is all about. Nothing is going to fail to meet the needs created by the ongoing real implosion, the recognition of the worthless OTTIs, other than temporary impaired assets that have been permanently impaired from day one of this disaster.

FDIC’s Insurance Commitments 34% Higher Than Reported
April 6, 2009 – 4:00 am

[Reader note: I thought it useful to add commentary around the FDIC data. Those that would prefer to skip straight to it, see the chart and read paragraphs 4-9].

Conventional wisdom says that financial companies are having trouble borrowing because credit markets are broken. This is dangerously wrong. The credit market itself is fine. It’s balance sheets that are broken. They have so little equity relative to their assets, there’s no cushion to protect creditors from losses.  With few good borrowers available and with the price of credit being capped by government, naturally creditors have little inclination to lend.  Washington’s solution is to “guarantee” all manner of risky investments, to use the public’s balance sheet to absorb trillions of dollars worth of private sector losses.  We’re told this will “restore confidence” in borrower balance sheets, leading to increased lending.  But this policy is dangerously misguided and may very well lead to economic Armageddon.

In point of fact, our fractional reserve financial system is just a gigantic Ponzi scheme.  It can only survive as long as it expands, which is to say, as long as new debt is flushed through the system to finance old debt.  But like all Ponzi schemes, the larger it grows the more unstable it becomes.  Eventually, it collapses of its own weight.

With this in mind, government should be concerned with paying down debt, not expanding it.  Deficit-financed bailouts and stimulus only increase the size of the Ponzi.  The bigger it grows, the harder it will crash.

My thoughts came back to this recently when I looked at FDIC’s 12/31/08 balance sheet.  Note at the bottom of that link the estimate for total insured deposits: from Q3 to Q4 it increased only a smidge, to $4.8 trillion from $4.6 trillion.

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