In The News Today

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122 days to go

Sinclair16 

Dear CIGAs,

This is precisely what the Formula anticipated in 2006.

As revenue collapses on all fronts while spending for all governmental activities including the major rescue actions rise violently and a few wars are being processed in historically un-winnable areas, the amount of Treasury instruments that must be issued will rise to eclipse the sun.

The dollar impact is as devastating as it has been to any empire’s currency that embarked on this well trodden road in history to financial perdition.

This is why a bear market in long bonds is a Pillar of Gold given to you in 2006 in the illustration, The Pillar of Gold at $1650.

This is exactly what you were told would happen nearly four years ago, the order in which it would happen, and exactly what it means to markets. Now I am telling you there is 122 days to go.

The situation in California is a mini prelude to when Washington makes the US dollar a clear IOU chit. It is already, but MOPE via SPIN still has Ivy League Wall Street keeping the sheeple as sheeple.

122 days to go.

US lurching towards ‘debt explosion’ with long-term interest rates on course to double
The US economy is lurching towards crisis with long-term interest rates on course to double, crippling the country’s ability to pay its debts and potentially plunging it into another recession, according to a study by the US’s own central bank
By Philip Aldrick, Banking Editor
Published: 5:44AM BST 06 Jul 2009

In a 2003 paper, Thomas Laubach, the US Federal Reserve’s senior economist, calculated the impact on long-term interest rates of rising fiscal deficits and soaring national debt. Applying his assumptions to the recent spike in the US fiscal deficit and national debt, long-term interests rates will double from their current 3.5pc.

The impact would be devastating by making it punitively expensive to finance national borrowings and leading to what Tim Congdon, founder of Lombard Street Research, called a “debt explosion”. Mr Laubach’s study has implications for the UK, too, as public debt is soaring. A US crisis would have implications for the rest of the world, in any case.

Using historical examples for his paper, New Evidence on the Interest Rate Effects of Budget Deficits and Debt, Mr Laubach came to the conclusion that “a percentage point increase in the projected deficit-to-GDP ratio raises the 10-year bond rate expected to prevail five years into the future by 20 to 40 basis points, a typical estimate is about 25 basis points”.

The US deficit has blown out from 3pc to 13.5pc in the past year but long-term rates are largely unchanged. Assuming Mr Laubach’s “typical estimate”, long-term rates have to climb 2.5 percentage points.

He added: “Similarly, a percentage point increase in the projected debt-to-GDP ratio raises future interest rates by about 4 to 5 basis points.” Economists are predicting a wide range of ratios but Mr Congdon said it was “not unreasonable” to assume debt doubling to 140pc. At that level, Mr Laubach’s calculations would see long-term rates rise by 3.5 percentage points.

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Jim Sinclair’s Commentary

I found an interesting quote that applies to those who I know and have be partners with at one time or another who stole trillions via OTC derivatives. They brought the common man to his knees with suffering, opening a decade in which hope will be crushed and opportunity will exist only for the elitist to enjoy.

"Darum gibt unser Herr Gott gemeiniglich Reichtum der groben Esein, denen er sonst nichts gonnt."
–Martin Luther (1483-1546)

Jim Sinclair’s Commentary

US 30 year US Treasury long term up trend line (28 years) is approximately in the 112-113 levels now.

The dollar is a fundamental disaster. Rogers is completely correct.

Jim Rogers Sells Dollars, Plans to Short Treasuries (Update2)
By Bob Chen

July 6 (Bloomberg) — The dollar and U.S. Treasuries are both likely to slide as soaring government debt in the world’s biggest economy undermines confidence in its assets, according to Jim Rogers, chairman of Rogers Holdings.

“The government is printing lots of money and borrowing even more; that’s not the basis for a sound currency,” he said in a telephone interview today from Singapore. “The idea that anybody would lend money to the U.S. government for 30 years at 3 or 4 or 5 or 6 percent interest is mind-boggling to me.”

Rogers, the author of books including “Investment Biker” and “Adventure Capitalist”, said he holds fewer dollars than a year ago and plans to “short U.S. government bonds someday.” A short bet involves selling a security you don’t own with a view to buying it back after the price has fallen.

The U.S. is stepping up debt sales to finance a record budget deficit as it tries to spend its way out of a recession and that’s causing the supply of the securities to balloon. After more than doubling note and bond offerings to $963 billion in the first half, another $1.1 trillion may be sold by year-end, according to Barclays Plc, one of the 16 primary dealers that are obligated to bid at Treasury auctions.

U.S. debt lost 4.46 percent through June, according to Merrill Lynch & Co.’s U.S. Treasury Master index.The yield on benchmark 30-year notes reached 4.84 percent on June 11, the highest since 2007, and was 4.31 percent as of 2:02 p.m. in Tokyo. It sank to 2.51 percent in December, the lowest since sales of the security began in 1977, as the economic slump fueled demand for the relative safety of government bonds.

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Jim Sinclair’s Commentary

The Chinese, according to Bloomberg on Sunday "Did not know what they wanted."

Of all the rank BS of universal class stupid, that statement was the best.

The dollar is the "Barbaric Relic" and "Gold" is the lynchpin of your future well being.

Shanghai Companies Sign First Yuan Settlement Deals (Update4)
By Bloomberg News

July 6 (Bloomberg) — Three Shanghai companies agreed to settle import and export contracts in yuan for the first time, as China seeks to reduce the role of the dollar in global trade.

Shanghai Silk Group, Shanghai Electric Group Co. and Shanghai Huanyu Import & Export Co. signed contracts worth 14 million yuan ($2 million) with customers in Hong Kong and Indonesia, Fang Xinghai, director general of the municipal government’s financial services office, said at a press conference today. Bank of Communications Co. and Bank of China Ltd. offered transaction services.

China, Russia and India have said the world economy is too reliant on the dollar and called for changes in how $6.5 trillion in foreign-exchange reserves are managed, before Group of Eight leaders meet this week. The settlement program and sales of yuan-denominated debt overseas are designed to make the currency more attractive for central banks to hold.

“This is a first step on the long road towards that target of making the yuan a global reserve currency,” said Nizam Idris, a strategist in Singapore at UBS AG, the world’s second biggest foreign-exchange trader. “That’s probably going to take five years or more.”

The central bank on July 2 allowed companies in Shanghai and four cities in the southern Guangdong province to settle trade in yuan with businesses in Hong Kong, Macau and Association of Southeast Asian Nations. Outside of special border trade zones, companies previously had to convert yuan into dollars or other currencies to settle international trade.

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Jim Sinclair’s Commentary

It starts like this then becomes California followed by a Federal bailout.

NYC municipal bonds with their worthless guarantees will be IOU chits.

NYC Freezes Hiring Because Of Senate Gridlock

Mayor Bloomberg Delaying Planned City Hires Indefinitely, Says Albany Chaos Is Holding Up New Tax Revenue
No New Cops, Firefighters, EMS Workers Or School Safety Agents
Jul 6, 2009 8:07 pm US/Eastern

Chaos is now hitting the city, as Mayor Michael Bloomberg has ordered an across-the-board freeze on hiring and the awarding of city contracts.

"I’ve instructed the city’s budget director to immediately freeze all hiring while the gridlock in the state Senate imperils the city’s budget," Bloomberg said in a statement Monday.

It was to be a joyous week in the police department, with 250 recruits due to be sworn in on Wednesday. Now, their jobs are on hold, and there is no way to know when – or if – the city will have the money to hire them.

Mayor Bloomberg ordered the freeze Monday afternoon, saying the Albany circus has prevented the state senate from approving an increase of 0.5 percent in the city sales tax – money the city needs to balance the budget.

The state must approve new tax measures that were included in the city’s budget for fiscal year 2010, which began July 1.

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Jim Sinclair’s Commentary

Here comes a currency constituent of the "SSCI" while MOPErs spin out their story that yes, there will be some MINOR CHANGES in the system of reserve assets available to central banks, but it lies CENTURIES IN THE FUTURE.

My answer is quite simple: 122 days to go!

China Begins Pilot Program to Settle Trade in Renminbi
By REUTERS
Published: July 6, 2009

SHANGHAI — China has officially opened a pilot program to allow companies to settle imports and exports in renminbi in selected regions, marking a major step toward eventually internationalizing the Chinese currency.

Three pairs of Shanghai companies with their Hong Kong and Indonesian counterparts signed contracts on Monday to be the first to settle business deals in the Chinese currency. Executives said the move would save costs and avoid exchange rate risks.

Bank of China and Bank of Communications were the first lenders to clear transactions in renminbi, considered a lucrative business given China’s expanding economy and huge presence in international trade.

Hong Kong also kicked off the long-awaited yuan settlement program on Monday.

HSBC said it completed its first renminbi trade settlement with Shanghai and its first cross-border credit transaction.

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Jim Sinclair’s Commentary

To be a fool in front of the sheeple is normal as they cannot tell the difference.

To be a fool in front of the entire world is not so good.

The Money Bunnies on Bloomberg TV either do not know or do not care that their words are heard in Mongolia.

When recently discussing this Administration’s universal medical health plan just this type of problem was questioned. The Money Bunny said to the world that the USA will do it right because we are Americans. That is patriotic, yes, but internationally dumb and universally an embarrassment to any knowledgeable person.

Reality check: Canada’s government health care system
By Dana Bash and Lesa Jansen
CNN

KINGSTON, Ontario (CNN) — For Shona Holmes, simple pleasures such as playing with her dog or walking in her plush garden are a gift.

After suffering from crushing headaches and vision problems, she was diagnosed with a brain tumor four years ago. She was told if it wasn’t removed, she could go blind or even die.

"They said to me that you had a brain tumor and it was pressing on your optic chasm and that it needed to come out immediately," Holmes said.

Holmes is Canadian, but the "they" she refers to are doctors at the Mayo Clinic in the United States, where she turned after specialists in her own government-run health care system would not see her fast enough.

"My family doctor at that time tried to get me in to see an endocrinologist and a neurologist," Holmes recalled. "It was going to be four months for one specialist and six months for the other."

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Jim Sinclair’s Commentary

Maybe this is not the best time for this when unemployment is the problem.

Higher minimum wage coming soon
Federal wage floor will rise to $7.25 an hour on July 24. Hike will be felt in 29 states. Can the job market handle it?
By Aaron Smith, CNNMoney.com staff writer
Last Updated: July 6, 2009: 2:56 PM ET

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NEW YORK (CNNMoney.com) — The federal minimum wage is set to increase later this month as the job market shows signs of further decay.

The federal minimum wage will go to $7.25 an hour on July 24 from its current level of $6.55, according to the U.S. Department of Labor.

The impact will be felt in 29 states, and many of them plan to match the federal minimum when it goes through.

Seven states already have laws mandating $7.25 minimum pay, while 14 states and Washington, D.C., exceed the new minimum. Employers are required to pay whichever is the highest: Federal or state.

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Jim Sinclair’s Commentary

Unwind means use yours and my cash to buy out the winning side of the arrangement. This money is not going into a dark hole of destruction, but rather into the bank account of the winners.

Any half whit could have seen this coming. Mia knew it!

Ponder out a window what MOPE, showmanship, and CRAP there is out there.

Unwinding at AIG Prompts Pasciucco to Ponder Systemic Failure

July 1 (Bloomberg) — Gerry Pasciuccostared out from his fourth-floor office at the hurly-burly of midtown Manhattan’s 48th Street, weighing the riskiest trade of his life. Over a 26- year career, he had risen to managing director at Morgan Stanley and earned a seven-figure-plus pay package. It was October 2008, and Edward Liddy, the new chief executive officer of insurerAmerican International Group Inc., had just asked Pasciucco to head the subsidiary at the vortex of the world financial cataclysm: AIG Financial Products Corp.

The mission: unwind AIGFP’s portfolio of 44,000 often complex, long-dated derivatives with a notional value of $2 trillion, close the unit, then fire what remained of its 428 employees and resign.

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Jim Sinclair’s Commentary

Sure, they can. All they need to do is what they are told to do. Now there is a contradiction in terms, but the truth of the matter is….

Can the Federal Reserve stay independent?
Posted by: Peter Coy on July 06

Fed watchers note: Fed Vice-Chairman Donald Kohn is testifying this Thursday on the topic of Federal Reserve independence. It’s before the House Financial Services Subcommittee on Domestic Monetary Policy and Technology. Should be interesting, coming on the heels of Fed Chairman Ben Bernanke’s efforts to fend off congressional attacks, including a bill from Texas Republican Ron Paul seeking to audit the central bank.

Before he joined the Fed, when he was still a Princeton academic, Bernanke seemed to take the position that the Fed merited plenty of independence simply because it was uninvolved in politics. There’s nothing political about managing the economy to hit an inflation-rate target that everyone agrees on, right?

But it’s clear now that Bernanke has a bigger vision for the Fed, one that involves supervisory powers over the entire financial sector. You can argue that the Fed had broad power already, but in politics you never know how much power you have until you try to exercise it. That’s what the Fed is seeking to do now—test its limits.

The deeper the Fed wades into running the financial system as well as the economy, the harder it will be to maintain its cherished independence. That’s just a fact of life in a democracy..

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Jim Sinclair’s Commentary

We anticipated an official play down of reserve currency debate, but be assured these conferences leak like a sieve.

Dollar discomfort thrust onstage for Italy summit
Reuters, Sunday July 5 2009
By Brian Love

PARIS, July 5 (Reuters) – World leaders are bound to express the hope that the worst of the global economic crisis is passing when they meet this week, but they are under pressure, too, to manage a Chinese challenge to decades of dollar supremacy.

Beijing, which has floated the idea of an alternative to the dollar as world reserve currency one day, wants a debate on the matter — sensitive in financial markets which are wary of risks to U.S. asset values — at a July 8-10 summit in Italy, officials say.

With so much of its reserves invested in U.S. assets, BeiJing needs to ensure that its longer-term goals do not spook markets in the short term and hit the dollar’s value — a point Vice Foreign Minister He Yafei made in Rome on Sunday.

"The U.S. dollar is still the most important and major reserve currency of the day, and we believe that that situation will continue for many years to come," He said.

Leaders from the Western economic powers and Russia meet in Italy on Wednesday and are joined the day after by leaders from China, India, Brazil and others to discuss global challenges — chief among them the worst recession in living memory.

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Jim Sinclair’s Commentary

The revival of the US auto industry to which this Administration has so tightly tied their political capital is akin to pushing a granite boulder up a mountain.

Auto parts maker Lear Corp files for bankruptcy
Tue Jul 7, 2009 6:00am EDT

(Reuters) – U.S. auto parts maker Lear Corp filed for Chapter 11 bankruptcy protection on Tuesday, a day after setting out plans to restructure its $3.6 billion debt burden under a proposed deal with creditors.

Lear, which has been weighed down by heavy debts and a sharp decline in automobile demand, said the reorganization had won the support of the majority of its creditors and it expected to submit the proposals to the bankruptcy court in coming days.

Under the plans set out on Monday, Lear would convert $3.6 billion in debt into a combination of new debt, convertible stock and equity warrants. But at that point it did not give a timetable for the bankruptcy proceedings.

The company now says its bankruptcy plan — the largest in a string of failures of auto parts suppliers — was supported by about 68 percent in principal amount of its secured lenders and more than 50 percent in principal amount of its bondholders.

"We intend to proceed on an expedited basis and expect to submit the plan to the Bankruptcy Court within 60 days," Lear Chief Executive Bob Rossiter said in a statement.

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Jim Sinclair’s Commentary

They were best credit rated guaranteed when you were sold them and now if you want to sell them to someone else, don’t even bother trying.

These rating companies are worthless relics.

As California struggles, Fitch cuts debt rating
By Jim Christie Jim Christie Mon Jul 6, 6:45 pm ET

SAN FRANCISCO (Reuters) – California suffered a new setback in its financial crisis on Monday when Fitch Ratings cut its rating on the state’s general obligation debt to just two notches above junk status.

Fitch cut its rating on California’s long-term bonds to "BBB," two notches above speculative grade, citing the state’s budget and cash crisis. The state last week started issuing "IOU" promissory notes to pay for some bills in order to conserve cash.

The credit rating agency also kept the debt of the most populous U.S. state on watch for additional downgrades. California ranks as the lowest-rated state general obligation credit by Fitch, followed by Louisiana, at "A+."

Tom Dresslar, a spokesman for State Treasurer Bill Lockyer, said the other two main credit rating agencies, Standard & Poor’s and Moody’s Investors Service, could soon follow Fitch’s example. "I’m sure their patience is not deep," he said.

Lower ratings threaten to raise California’s borrowing costs during a severe cash crunch in Sacramento, the state capital, one of Fitch’s top concerns.

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Jim Sinclair’s Commentary

Now the center is folding in. Wall Street is made whole and as a result the whole nation suffers.

California Hotel Foreclosures Double in Last Three Months
By Mark Heschmeyer
July 1, 2009

From Watch List reader, Alan X. Reay, founder and president of Atlas Hospitality Group in Irvine, CA, comes this astounding statistic. The number of California hotels in default or foreclosed on has jumped 125% in the last 60 days. The state now has 31 hotels that have been foreclosed on and 175 in default.

With 19.6% of the total, San Bernardino County leads the state in foreclosed hotels. Riverside County follows with 16.1% and San Diego County has 12.9%. Los Angeles County, with 12% of the total, has the most hotels in default. San Bernardino County is next with 9.7% and San Diego County follows with 8%, according to Atlas Hospitality.

"Initially, the wave of distress in California was seen by the smaller, non-flagged hotels in secondary and tertiary markets," Reay said. "As the hotel economy worsened, we have seen it impact all property types. The properties range from the luxurious St. Regis Monarch Beach Resort (pictured) in Dana Point to the more economical Extended Stay and Red Roof Inn chains. No market or brand is immune in this downturn."

Non-franchised hotels account for a disproportionate number of foreclosures. They make up about 87% of the total. However, franchised hotels make up 59% of the defaulted properties.

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I place [the] economy among the first and most important virtues, and public debt as the greatest of dangers to be feared… we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty…or profusion and servitude.
— Thomas Jefferson

Jim Sinclair’s Commentary

CIGA Green Hornet says "$300 billion is chump change in this world."

U.S. Lenders May Have to Raise $300 Billion, Deutsche Bank Says
By Josh Fineman and Ambereen Choudhury

July 7 (Bloomberg) — U.S. banks may have to raise as much as $300 billion to cover growing credit losses and regulators’ future capital requirements, Deutsche Bank AG said.

At least $100 billion might be needed to rebuild Tier 1 common equity, a gauge regulators use to measure a bank’s ability to withstand losses, Deutsche Bank analyst Matt O’Connor wrote in a report. Future Tier 1 requirements may climb close to 10 percent of assets, which would require an additional $100 billion to $200 billion of capital, according to the report.

“We expect continued weak bank results in the second quarter as credit pressures continue,” said O’Connor, who has two “buy” recommendations on the 16 lenders covered by Deutsche Bank: Regions Financial Corp. of Birmingham, Alabama, and Minneapolis-based U.S. Bancorp.

U.S. banks have already raised about $507.1 billion since the beginning of the financial crisis in 2007, according to data compiled by Bloomberg. The Federal Reserve conducted stress tests on the nation’s biggest lenders earlier this year, and forced 10 of them to raise $75 billion as a cushion against a worsening recession.

The U.S. economy will shrink by the most since 1946 this year, according to a Bloomberg survey of 61 economists last month. The jobless rate rose to 9.5 percent in June, the highest since August 1983.

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Jim Sinclair’s Commentary

Well this gives us comfort. We all know that Goldman would never use this algorithm program to manipulate markets.

See the calming words of Goldman’s attorney:

“The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,” Facciponti said, according to a recording of the hearing made public yesterday. “The copy in Germany is still out there, and we at this time do not know who else has access to it

Goldman May Lose Millions From Ex-Worker’s Code Theft (Update2)
By David Glovin, Christine Harper and Saijel Kishan

July 7 (Bloomberg) — Goldman Sachs Group Inc. may lose its investment in a proprietary trading code and millions of dollars from increased competition if software allegedly stolen by a former employee gets into the wrong hands, a prosecutor said.

Sergey Aleynikov, a 39-year-old ex-Goldman Sachs computer programmer, was arrested July 3 after arriving at Liberty International Airport in Newark, New Jersey, U.S. officials said. Aleynikov, a citizen of America and Russia who joined the bank in 2007, is charged in a criminal complaint with stealing the trading software. Teza Technologies LLC, a Chicago-based firm co-founded by a former Citadel Investment Group LLC trader, said it suspended Aleynikov, who started there on July 2.

At a court appearance July 4 in Manhattan, Assistant U.S. Attorney Joseph Facciponti told a federal judge that Aleynikov’s alleged theft — the largest breach ever at the bank — poses a risk to U.S. markets. Aleynikov transferred the code, worth millions of dollars, to a computer server in Germany, and others may have had access to it, Facciponti said, adding that New York-based Goldman Sachs may be harmed if the software is disseminated.

“The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,” Facciponti said, according to a recording of the hearing made public yesterday. “The copy in Germany is still out there, and we at this time do not know who else has access to it.”

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