In The News Today

Posted at 12:43 AM (CST) by & filed under In The News.

Dear CIGAs,

The Financial Bubble Machine is cooking like never before in history. The result is higher prices even if Miss Cleo has less clients.

Hyperinflation is a currency event. It is not the product of increased business demand for anything. Right now we are fighting the battle at .8200 on the USDX.

When this battle is lost the drama above starts.

Lose it will. If not tomorrow, then very soon.

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Jim Sinclair’s Commentary

You are going to hear the term "Legacy Assets" a lot more in the near future.

Here is the formal definition:

Q: What is legacy assets?

A: Legacy assets are those assets which are less productive (outdated) and in some cases least productive overtime, they are just on the brink of being a liability.

When assets lose considerable value they are often termed as legacy assets.

Literal meaning of the word legacy is outdated or obsolete.

The informal definition is "worthless OTC derivative junk paper."

Jim Sinclair’s Commentary

Whatever it is, wherever it is, if it fits into the matrix of the OTC derivative meltdown it is being bailed out.

This has nothing to do with altruism; it is credit default derivatives that matter.

Who is going to bail out the US dollar? Not the Chinese.

Treasury plans help for muni bond market
By Tom Braithwaite in Washington and Nicole Bullock in New York
Published: May 15 2009 00:56 | Last updated: May 15 2009 00:56

The US Treasury would provide a backstop to stricken states like California, which are struggling to raise debt, under legislation due to be introduced to Congress.

Proposals published on Thursday would see the Treasury acting as a reinsurer in the market and the Federal Reserve setting up bond purchase agreements, which were commonly provided by banks until the credit crisis.

The changes present an even greater use of federal money and oversight into new areas of the market, with billions of dollars from the $700bn troubled assets relief programme – which has been used to buy stakes in banks and car companies.

Rating agencies would also come under pressure to improve state and local governments’ credit ratings, with the Securities and Exchange Commission tasked with checking that they are not assigning too high a risk of default compared with corporate bonds.

Barney Frank, the Democratic chairman of the House Financial Services Committee, who supports legislation, said that he would hold hearings into the changes on May 21.

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Jim Sinclair’s Commentary

Wall Street’s solution to "Melt Down America" is to cause the greatest bubble burst of all time.

The final result will be hyperinflation. About that there is no question at all.

It is economic law that has been all but forgotten for years that is just about to resurface with a bang.

Easy Money Did Us In – Geithner
May 14, 2009

In an interview with Charlie Rose on Tuesday, Tim Geithner admitted the bubble was caused by Greenspan’s easy money policy. Unfortunately, Charlie didn’t ask the obvious follow-up: “Why will this time be different? Why will Bernanke’s easy money policy lead to different results?”

Rose: “Looking back, what are the mistakes and what should you have done more of? Where were your instincts right, but you didn’t go far enough?”

Geithner: “…I would say there were three types of broad errors of policy and policy both here and around the world. One was that monetary policy around the world was too loose too long. And that created this just huge boom in asset prices, money chasing risk. People trying to get a higher return. That was just overwhelmingly powerful.”

Rose: “It was too easy.”

Geithner: “It was too easy, yes….

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Jim Sinclair’s Commentary

Here is a map accurate to today. 1,300,000 people displaced. Pakistan refuses to divulged where the nukes are to US. The UN calls the displaced people a major humanitarian problem and the surge results in strengthening the Taliban recruiting program.

Pakistan conflict map

Research by the BBC Urdu’s service into the growing strength of Taleban militants in north western Pakistan shows that only 38% of the area remains under full government control.

This map of the area is a snapshot of the current situation. However, with ongoing fighting between the Pakistan armed forces and the Taleban the situation on the ground could change in the future.

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Jim Sinclair’s Commentary

When I give you a resource on a certain strength why do many of you immediately believe the person is a sage on all subjects, quoting everything they say as gospel and running to me with your unfounded fears?

Martin Armstrong is a master timer and that is all. If he was a master of all subjects he never would have had all the trouble he has had in his life.

Alf fields is a master at price levels.

Please leave it there.

There are no masters of all talents out there.

 

Jim Sinclair’s Commentary

Here are today’s Greens-hoots.

More deflation signposts

CNBC had an article on its website that ran with the following headline: "Recession Special: Lobster at Lunch-Meat Prices? Yes, Please". Consumer attitudes towards high-end cuisine are shifting rapidly towards less expensive options. Fisherman in Nova Scotia are complaining that lobster prices have been so beaten down that they are now fetching the same price as bologna at the supermarket. At one fish market in Cape Cod, lobster prices dropped nearly 50% against year-ago levels.

Loan demand falls with frugality

We have frequently noted that loan demand is playing a key role in the decline in credit. From the Wall Street Journal page A2 we would highlight "Worries About the Economy Weigh on Loan Demand." The article cites a young couple paying cash for their new car. They rationalize it by noting that, although paying upfront involves sacrifice "it means living more frugally", it also means that they live "more freely."

Keeping the supply of credit flowing

We see from the New York Times that the Senate rejected the idea of price caps (no, not for bankers) for credit cards. Voting down a proposal to cap interest rates on credit cards at 15% by 60 to 33, the Senate made it more likely that credit will remain available for consumers, in our view. After all, banks got into trouble in the first place by not adequately charging and accounting for credit risk.

Defaults surging, according to S&P

In a report that was released yesterday, S&P reported that a staggering $541.2 billion of rated debt defaulted in the first three months of this year. Across the globe, some 62 companies defaulted, the largest number since the first quarter of 2002.

Foreclosures mounting

Home foreclosures jumped for the third consecutive month. According to the latest data from RealtyTrac, foreclosures totaled 342,038 in April, which means that for every 374 households in this country, one is going into some stage of the foreclosures process. Since January, foreclosures have surged nearly 25%. As unemployment mounts, we suspect delinquencies and foreclosures will continue to rise. This added source of supply into an already depressed residential real estate market will continue to put downward pressure on home prices, in our view.

One more data point reflecting a weak economy

The Department of Transportation released its transportation services index and it dropped 2.7% in March. On a year-over-year basis, the index deteriorated to -6% in March from -5.3% in February. The index consists of a freight component (consists of for hire trucking, railroad freight services, waterway transport, pipeline and air) and a passenger component (consists of mass transit, intercity passenger rail, and passenger air).

Retail sales disappoint again

Retail sales fell 0.4% M/M in April versus consensus expectations for a flat outturn and BAS-ML (-0.8% M/M). Core sales (ex building materials, gasoline and auto dealers) were down 0.3% M/M and in March were revised down by 0.1%. We had factored in a slightly more negative decline in retail control for April, and therefore see some upside to our real consumption forecast of -2.8% Q/Q annualized in 2Q and overall GDP estimate of -4.8% Q/Q. Yesterday’s results suggest that weakness in consumer spending is here to stay, with rising unemployment, the end of the tax filing season, a higher savings rate and overall, more cautious behavior all significant headwinds. Keep in mind that tax refunds were up 15% Y/Y in April and were expected to boost results by the majority of consensus ? this money is either being channeled into savings or used to pay down debt.

Auto sales posted a surprising 0.2% increase despite a drop in unit sales from 9.8M to in March to 9.3M units in April. And while underlying gasoline prices rose to $2.10/gallon from $2.01/gallon in March, stations reported a 2.3% decline in sales given weaker demand and an offsetting seasonal factor. Excluding autos and gas stations, sales fell 0.3% on continued discounting and sluggish consumer demand. Spending at drug, building material/garden, sporting goods stores and restaurants all posted very light gains over the month, while spending in every other category fell significantly. Electronics retailers reported a 2.8% M/M decline after falling 7.8% in March as spending in this arena clearly reflects the negative weight of tighter credit and a shift away from discretionary products. Even food retailers posted a 1.0% M/M decline ? a category that has been trading negative with positive gains every other month.

Inventories cut, but still remain too high

Business inventories fell by 1.0% M/M in March for the seventh straight monthly decline. This was roughly in line with consensus (-1.1%), but a bit lighter than Banc of America Securities-Merrill Lynch expectations (-1.3%). Companies continued to play catch-up to the slowdown in domestic and foreign demand, which left many holding too much product. Indeed, while sales (down 1.6% M/M) have plummeted by 18.4% from the nearby peak, inventories have only been cut by 6.8%, leaving the inventory-to-sales ratio (I/S) at an 8-year high of 1.44 months in March. This marks only a slight improvement versus February, with persistent imbalances in each business sector, and suggests that ongoing cutbacks in production will likely be necessary to work through stocks in the months ahead. Retail inventories, the new information from this report, fell by 0.7% M/M in March, after larger declines in the prior four months. Sales fell by 1.3% M/M, boosting the I/S ratio to an uncomfortably high 1.55 months, with the most significant imbalances at building material/garden and clothing stores, as well as auto dealers. The April sales decline suggests that retailers still have more work to do and will likely have to offer ongoing promotions and discounts to lure in consumers.

Mortgage apps drop to lowest level since March

Mortgage applications fell to the lowest level since March as rising unemployment, tight credit conditions and falling property values restrain demand. Mortgage applications fell 8.6% for the week ended May 8. Since peaking on April 3, mortgage applications have fallen 28.4%. Mortgage applications for refinancing dropped 11.2%. Note that since April 3, refinancing activity has alternately increased and decreased. However, as refinancing activity is off 32.7% since April 3, the trend is clearly down. Mortgage applications for purchase increased for the second consecutive week.

Jim Sinclair’s Commentary

What is behind us cannot be fixed. What is in front of us can be fixed.

The problem is behind, and not in front. The quadrillion plus is behind us, not in front.

Obama Proposes a First Overhaul of Finance Rules
By STEPHEN LABATON and JACKIE CALMES
Published: May 13, 2009

WASHINGTON — In its first detailed effort to overhaul financial regulations, the Obama administration on Wednesday sought new authority over the complex financial instruments, known as derivatives, that were a major cause of the financial crisis and have gone largely unregulated for decades.

The administration asked Congress to move quickly on legislation that would allow federal oversight of many kinds of exotic instruments, including credit-default swaps, the insurance contracts that caused the near-collapse of theAmerican International Group.

The Treasury secretary, Timothy F. Geithner, said the measure should require swaps and other types of derivatives to be traded on exchanges or clearinghouses and backed by capital reserves, much like the capital cushions that banks must set aside in case a borrower defaults on a loan. Taken together, the rules would probably make it more expensive for issuers, dealers and buyers alike to participate in the derivatives markets.

The proposal will probably force many types of derivatives into the open, reducing the role of the so-called shadow banking system that has arisen around them.

“This financial crisis was caused in large part by significant gaps in the oversight of the markets,” Mr. Geithner said in a briefing. He said the proposal was intended to make the trading of derivatives more transparent and give regulators the ability to limit the amount of derivatives that any company can sell, or that any institution can hold.

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Jim Sinclair’s Commentary

Ratings have become a farce. The former controller general is an honest person so his opinion does not count.

US Could Lose Its AAA Rating, Says Former Comptroller General
Joe Weisenthal|May. 13, 2009, 6:41 AM

Even though the tax and revenue fundamentals of the US are awful, it’s presumed that the US can hang onto its AAA rating for awhile. For one thing, we have a great track record (which helps a bit), we have a pretty solid political system, a largely free market economy and the ultimate fallback, the ability to print up our own currency. That’s a real benefit.

But as we put more and more debt from both the private sector and the states onto the Federal balance sheet, that’s bound to add some pressure.

In an FT Op-Ed, David Walker, the former Comptroller General of the US, lays out the scenarios by which the US could lose its AAA rating.

Obviously, our rampant spending and debt guarantees are an issue, but this is the part that we found particularly insightful:

…failure by the federal government to create a process that would enable tough spending, tax and budget control choices to be made after we turn the corner on the economy would send a signal that our political system is not up to the task of addressing the large, known and growing structural imbalances confronting us.

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Jim Sinclair’s Commentary

This is a Wall Street’s solution to Motors going broke.

You take what works and you put it in one basket with some funding so they can screw it up again.

You take many dealers and throw them in the s**t heap. In that s**t heap called "bad motors" you put all the litigation and liabilities (parts manufacturers not paid selectively) plus very few dollars so it can’t under any circumstances work.

You declare victory assuming those that object, like hedge funds, can be summarily silenced by threatening to regulate their derivatives.

Nobody runs the numbers on the near 800 dealers, sales personnel and reception fired, the broken lunch wagons and the cars for sale stored at some abandoned airport that no one sees. Many parts dealers owed money can go fly a kite unless they are connected.

This is a pure Wall Street paper shuffle at its best; a shell game with no consideration for the fallout even if there is no delay in the bankruptcy. God help us all if somebody in the bankruptcy actually demands that contracts be adhered to in legal priority of payments.

Why not add a Stress Test and declare all motor companies have passed, with the exception of Kaiser Frazier and Studebaker. That might buy a few days before the nonsense of this plan becomes clear.

The system says if you cannot pay, you default. Now that Wall Street is in charge we are all going to default via a default in the US dollar, the final result of all this avoidance of the real.

Chrysler Plans to Shut One Quarter of Its Dealers
By NICK BUNKLEY
Published: May 14, 2009

DETROIT — About a quarter of Chrysler’s dealers are receiving letters Thursday telling them that the company plans to eliminate them by June 9.

Chrysler, which filed for bankruptcy protection two weeks ago, sent letters to 789 of its 3,200 dealers, revoking their franchises with the carmaker. It also filed a list of the dealers it is cutting in bankruptcy court Thursday.

Other dealers received letters welcoming them to the new Chrysler.

“It just says whether you’re in or out,” said Anthony Viviano, who owns two Dodge dealerships in Detroit’s suburbs and is president of the Detroit Dodge dealers’ association. “Some of my fellow dealers have already called and said they’re out. They got the poison letter.”

One of Mr. Viviano’s two dealerships was on the list.

But he said some dealerships could be saved by rulings from Chrysler’s bankruptcy judge or if other dealers decide to sell their franchises.

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Jim Sinclair’s Commentary

What makes the Banksters think that society is going to remain tolerant?

"If we didn’t live in a tolerant society, the chairman and the rest of the board would be hanging by their necks with piano wire out on the road."
–AIB shareholder, Gary Keo

Top Irish banker pelted with eggs

One of Ireland’s top bankers was pelted with eggs on Wednesday as hundreds of angry shareholders attended a meeting.

Dermot Gleeson, chairman of Allied Irish, ducked to avoid the missiles after addressing an extraordinary general meeting at its Dublin HQ.

Pensioner Gary Keogh said he felt compelled to throw the eggs after Mr Gleeson tried to speak over another shareholder.

Mr Keogh, from Blackrock in south Dublin, was removed from the building.

He said he was extremely angry after losing his pension in the economic downturn.

"The whole board should be replaced by Mickey Mouse and Donald Duck," he added.

"I have no pension. My pension now is wiped out because of AIB. I cannot sell the shares because they are useless.

"If we didn’t live in a tolerant society, the chairman and the rest of the board would be hanging by their necks with piano wire out on the road."

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Jim Sinclair’s Commentary

The following is a by subscription service.

Yes, he is correct. When this bubble blows it will blow .72, .62 and maybe .52 right out of the dollar support mechanism.

The common share of the US Fed and Treasury bubble maker, the US dollar, will be the most abused entity as a result of the Wall Street fix for all problems. Fix Wall Streeters and forget the problem.

The "Bailout Bubble" — The Bubble to End All Bubbles

KINGSTON, NY, 13 May 2009 — The biggest financial bubble in history is being inflated in plain sight, said Gerald Celente, Director of The Trends Research Institute.  "This is the Mother of All Bubbles, and when it explodes," Celente warns, "it will signal the end to the boom/bust cycle that has characterized economic activity throughout the developed world."

Either unwilling or unable to call the bubble by its proper name, the media, Washington and Wall Street describe the stupendous government expenditures on rescue packages, stimulus plans, buyouts and takeovers as emergency measures needed to salvage the severely damaged economy.

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