In The News Today

Posted at 1:16 PM (CST) by & filed under In The News.

121 days to go.

Dear CIGAs,

The dollar is finished in Asia. The dollar rules gold in the inverse.

Yuan Deposes Dollar on China Border in Sign of Future (Update1)
By Bloomberg News

July 8 (Bloomberg) — Huang Xinyuan, who sells mining equipment and pesticides to customers across China’s border with Vietnam, says he no longer wants payment in U.S. dollars and prefers the yuan.

Sales using the greenback at Guangxi Jinbei Group, where Huang is vice president, dropped to 30 percent of contracts in 2008 from 87 percent in 2007. The yuan, which has gained 21 percent since it was allowed to strengthen against the dollar starting in 2005, offers greater stability, he said.

“In recent years, the dollar has gone in only one direction and that is down,” said Huang, 45, in his second- floor office in Pingxiang, a town set amongst karst limestone hills and sugar-cane fields in China’s southwest Guangxi Zhuang Autonomous Region, three kilometers (1.9 miles) from Vietnam. “Settling our orders in yuan removes a major risk.”

China expanded yuan settlement agreements last week from border zones to its largest financial centers, including Shanghai, Guangzhou and Hong Kong. The program is being rolled out across Malaysia, Indonesia, Brazil and Russia, all nations seeking to reduce the dollar’s role as the linchpin of world finance and trade.

The central bank first brought up the concept of a supranational currency to replace the greenback in reserves in March. It will sponsor use of the yuan in trade by arranging export tax rebates. Russia and India said the global financial crisis had highlighted the dollar’s flaws and called for a debate before the Group of Eight leaders meet in L’Aquila, Italy, starting today.

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Jim Sinclair’s Commentary

All this does in our Wild West financial world is send business to other accommodating exchanges such a Iran and Dubai.

This does nothing to control price swings because of arbitrage. It makes the illiquid exchanges top dog liquidity in an instant.

This is MOPE and provincialism common to America. It is too stupid to be stupid. Look at the guy to the left side of the speaker.

U.S. Considers Curbs on Speculative Trading of Oil

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By EDMUND L. ANDREWS
Published: July 7, 2009

WASHINGTON — Reacting to the violent swings in oil prices in recent months, federal regulators announced on Tuesday that they were considering new restrictions on “speculative” traders in markets for oil, natural gas and other energy products.

The move is a big departure from the hands-off approach to market regulation of the last two decades. It also highlights a broader shift toward tougher government oversight under President Obama.

Since Mr. Obama took office, the Justice Department has stepped up antitrust enforcement activities, abandoning many legal doctrines adopted by the Bush administration.

The Obama administration is also proposing an overhaul of financial regulation that would include tougher capital requirements for big banks, tighter regulation of hedge funds and a new consumer protection agency with broad power to regulate credit cards, mortgages and other consumer lending.

In the case of oil and gas trading, regulators made it clear that they were willing to move, without waiting for Congress to act on Mr. Obama’s overhaul, invoking their existing powers.

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Jim Sinclair’s Commentary

The damage is done and the downward spiral keeps expanding. The Formula will not be undone until it completes its currency intentions.

Delinquencies on U.S. Home-Equity Loans Reach Record (Update1)
By Margaret Chadbourn

July 7 (Bloomberg) — Late payments on home-equity loans rose to a record in the first quarter as 18 straight months of job losses and a slumping economy left more borrowers unable to pay their debts, the American Bankers Association reported.

Delinquencies on home-equity loans climbed to 3.52 percent of all accounts from 3.03 percent in the fourth quarter, and late payments on home-equity lines of credit climbed to a record 1.89 percent, the group reported today. An index of eight types of loans rose for a fourth straight quarter, to 3.23 percent from 3.22 percent in October through December, the group said.

“The number one driver of delinquencies is job losses, which we’ve seen build and build,” James Chessen, the group’s chief economist, said in a telephone interview. “Delinquencies won’t come down without a dramatic improvement in the economy and businesses will have to start hiring again.”

The U.S. economy lost an average 691,000 jobs a month in the quarter, and more than 6.5 million positions have been shed since the recession began in December 2007. The economy this year will shrink the most since 1946, according to a Bloomberg survey of 61 economists last month. President Barack Obama predicted last month unemployment will reach 10 percent this year. The rate was at a 26-year high of 9.5 percent in June.

Delinquent bank-card accounts jumped to a record 6.60 percent of outstanding card debt in the first quarter from 5.52 percent in the previous period, a signal unemployed borrowers are relying on cards as falling prices erode the equity in their homes. More borrowers are using cards to meet daily expenses after losing their jobs, the ABA said.

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Jim Sinclair’s Commentary

Look, be real. The FDIC are bureaucrats, cops, and are busy so the fact anything is done is a miracle.

Watchdog Faults FDIC Oversight Of Failed Texas Bank
By Michael R. Crittenden
Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)–The Federal Deposit Insurance Corp. should have been more aggressive in recognizing problems and forcing changes at a failed Texas bank ahead of its collapse, an internal watchdog said in a report released Tuesday.

The FDIC’s office of inspector general said in its report that Houston, TX-based Franklin Bank failed primarily due to management’s "high-risk business strategy." But regulators still should have done more to prevent the bank from failing, auditors said, a collapse that was estimated to cost the government’s deposit insurance fund $1.5 billion.

"In the case of Franklin…while recommendations were made and certain supervisory actions were taken over a five-year period, these actions were not always timely and effective," the inspector general’s report said.

The finding is the latest in a series of reports from federal watchdogs suggesting that regulators could and should have done more to address risky practices in the banking industry. Those practices, including risky real estate lending and a reliance on volatile funding sources, have led banks to fail at rates not seen since the early 1990s.

In the case of Franklin, the inspector general’s office found the bank had weak risk-management controls and was left "unprepared and unable to effectively manage operations in a declining economic environment." The bank was closed by Texas regulators in November.

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Jim Sinclair’s Commentary

That is the gusher down nature of a Wall Street breed crisis: Saving the bacon of the "Financial Fat Cats" that have come home to kill the common man for decades.

Colorado farmers say banking crisis hitting home
By STEVEN K. PAULSON , 07.07.09, 03:14 PM EDT

GREELEY, Colo. — Colorado farmers and bankers on Tuesday told a congressional oversight panel that oversees the bank bailout that the banking crisis is threatening their livelihoods and they need banking standards that are better tailored to their businesses.

The panel met in Colorado’s agricultural heartland to hear from farmers and others who are struggling to get credit amid the economic downturn, and comes three months after Greeley’s New Frontier Bank collapsed, leaving many farmers unable to find lenders willing to give them vital operating loans.

"Our farmers don’t want a bailout, they want the ability to succeed," said Les Hardesty, chairman of the Dairy Farmers of America Mountain Area Council.

Witnesses included Mike Flesher, executive vice president for Farm Credit Services of the Mountain Plains, Lonnie Ochsner, senior vice president for New West Bank, Marc Arnusch, owner of Mark Arnusch Farms, Michael Scuse of the U.S. Department of Agriculture.

Congress created the panel to hold hearings and issue a report on commercial farm credit markets and the use of loan restructuring as an alternative to foreclosure under the Troubled Asset Relief Program, the federal stimulus plan. The report is due July 21.

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Jim Sinclair’s Commentary

The banks never stopped losing. FASB lost it honor. Now there are no earning amongst the financials and FASB is dishonored publicly.

U.S. banks continue to close at record pace
July 7, 8:07 AM

As many Americans began celebrating the 4th of July weekend, another rash of U.S. banks failed and were closed by authorities at the Federal Deposit Insurance Corporation. According to CNN, 52 banks have closed in 2009, more than double the number from last year.  Banks have been hit hard with dropping home values. The recession has increased unemployment, which has caused consumers to default on their loans.

Six family-owned banks in Illinois and one bank in Texas closed Thursday costing the FDIC $343.3 million. The banks were acquired by the FDIC then sold to other institutions and will now reopen. The FDIC said the Illinois banks followed a business model that “created concentrated exposure in each institution." The agency said that the six failures stemmed from the banks’ investments in collateralized debt obligations (CDOs) and other loan losses.

Despite President Obama’s efforts to rein in banks, the carnage continues. This has included billions in aid to banks in return for preferred stock.  As I reported here in June ,10 banks began to repay $68 million in federal aid.  However, financial experts attending the Wall Street Journal Future of Finance Initiative meetings in March predicted 1,500 U.S. bank branches would close by 2010. The Obama administration has tried to stimulate overall lending by backing assets like credit cards and mortgages.

A new ABC NEWS report says new credit cards are down 38%. That’s discouraging for those who want to see banks pumping liquidity into the economy.  "The credit engine needs a tune-up," says Jim Powers, an Equifax assistant vice president.  Equifax is a credit rating agency that provides financial data for consumers.

With leaders in Congress committed to enacting regulatory reform by the end of the year, on June 30th the Obama Administration delivered a bill to Capitol Hill that would create the Consumer Financial Protection Agency.  The new agency is designed with the specific goal of “looking out for American families when they take out loans or use other financial products or services – with a mission to promote access and protect consumers from unscrupulous practices across the market.”  The CFPA would also enforce the new credit card bill signed into law by President Obama and Congress and have authority to deal directly with conflicts in the mortgage markets.

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Jim Sinclair’s Commentary

This is getting boring. Maybe in our lifetime?

S.E.C. May Reinstate Rules for Short-Selling Stocks

They have been reviled as the bad hats of Wall Street, nefarious traders who cashed in on the market collapse and, some insist, helped precipitate it.

Now short-sellers, the market skeptics who correctly called last year’s downturn, are coming under even more unwanted scrutiny, this time from federal regulators. The Securities and Exchange Commission appears poised to reverse itself and reinstate rules that would make shorting stocks — that is, betting their prices will decline — somewhat more difficult.

Whether the S.E.C. will go far enough to satisfy the many critics of short-sellers is far from certain. The controversial role of these investors has divided not only the financial industry, but also federal regulators. As the S.E.C. considers its options, the debate is heating up.

Hedge funds and big pension funds argue that short-selling is vital to modern markets. Such trading not only enables investors to hedge their risks but also to ferret out weak companies or, as in the case of Enron, outright frauds.

But many banks, whose stocks came under attack last autumn, maintain that unfettered short-selling is dangerous. The shorts, their argument goes, helped bring down Bear Stearns and Lehman Brothers last year.

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Jim Sinclair’s Commentary

ETF are not what they appear to be.

You only need to read the prospectus and check the lineage of management to know what master they serve.

In gold there simply isn’t that much to be bought or sold as is reported bought and sold, indicating that the Gold ETF is NOT dealing in the cash market for gold or on the COMEX.

As such, all Gold EFTs are paper OTC derivative plays. Logic denies any other possibility.

There are two glaring risks that many are still taking:
1. ETFs.
2. Internet Financial Entities.

Game Over for U.S. Oil, Natural Gas ETFs?

Commodity ETFs have been criticized from all corners. Investors have pilloried their inability to accurately track the price of their underlying asset. Industry watchdogs have assailed their inadequate disclosure of risks. And regulators have fretted over their ability to unduly manipulate futures markets.

Yet ETFs like the United States Natural Gas Fund (UNG) and the United States Oil Fund (USO) seem to have thus far gotten away high fees, poor disclosure, and disappointing returns, as investors are still buying them in droves. But regulators are less happy, and commodities-futures ETFs may not survive the coming regulatory onslaught.

Bloomberg reported yesterday that the Commodity Futures Trading Commission (CFTC) will open hearings into expanding regulation of speculative trading in commodities. Although the hearings concern all speculators, the regulators are primarly concerned with USO and UNG’s ability to move the oil and natural gas markets higher, adding a speculative premium to energy prices. Trading in the UNG was breifly halted as the SEC denied its routine request to issue more shares.

Ironically, with the USO and UNG, investors get the worst of both worlds. The funds themselves don’t track the price of the commodity very well due to rollover, so investors don’t reap the rewards of higher prices. But many believe their trading nonetheless increases demand for the contracts, driving spot prices prices higher. Not only do the UNG and USO screw you out of your returns, they make filling up and heating your home more costly. The only people who benefit from this scheme are the ETF issuers who collect the fees, and the speculators who actually play the futures markets properly.

The CFTC is considering putting limits on holding futures contracts, which could take a variety of forms including limiting the number of trades or contracts any one market participant can hold. Such a move would directly threaten commodity futures funds, and could force many of the largest ones to close up shop.

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Jim Sinclair’s Commentary

There is a very simple way to know. Whatever is officially said guarantees you the opposite.

Everything suggests that the American bonds seized at Chiasso are real

Official U.S. sources continue to say they are fakes, but there is no news that American experts have inspected them in person. Arrested for another matter, the director of a U.S. radio who says the bonds are real and Japan was trying to sell in Switzerland, not trusting the ability of the United States to honour its debt.

Milan (AsiaNews) – Four weeks have passed since American bonds were confiscated from two Japanese men who were travelling on a direct train to Chiasso, Switzerland, and while there has been clarification of some – very few -points, Italian authorities have remained silent on the rest of the episode.

In addition, a strange coincidence in the timing of the arrest of a director of an internet radio who had made revelations regarding the incident ,increases the already strong oddities surrounding the case. This added to the revaluation of the fact that among the evidence seized there were "Kennedy Bonds", all points toward the authenticity of the items seized by the Guardia di Finanza (GdF) in early June.

The major English-speaking newspapers ignored the story for a couple of weeks. They only started to report on it after the Bloomberg agency carried a story on  18 / 6, in which a spokesman for the Treasury, Meyerhardt, declared that the bonds, based on photos available on the Internet, were "clearly false." The same day, the Financial Times (FT) published an article whose title laid the blame for the (alleged) infringement at the feet of the Italian Mafia, despite the fact that the article failed to make even one possible connection with the episode in Chiasso. Nevertheless, the version of events as reported in FT was taken up by others as being "appropriate" (given that it is a very common cliché about Italy and it is a sequester that took place in Italy) and in the end "colourful." It’s a pity that it goes against all logic: that the Mafia tried to pass unnoticed in its attempt to dump fake bonds amounting to 134.5 billion dollars and moreover were to "stung" a mere step from their gaol,  is not very credible.

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Jim Sinclair’s Commentary

There is no limit to the amount of stimulation or QE that will be applied in the West because the only problem that has been approached is making good to the winners on the OTC derivatives held by major financial institutions.

Banks are still hanging on by their fingernails with all hopes pined on the elusive green shoots.

The first quarter earnings in the financial world were a onetime gift from FASB (at the cost of all they are supposed to stand for) that is now sterile under present circumstances. In simple English, they have already marked up the inventory out of sight.

Should the Fed roll over under the pressure of Administration wishes or the Fed morph from monetary meddler to regulator, the "no limit QE" will become the goal of all stimulative endeavours with all the consequences so ignored by the practitioners of management of perspective economics coming into play.

U.S. must be open to second economic stimulus: Hoyer
Tue Jul 7, 2009 7:38pm EDT
By Susan Cornwell and Jeremy Pelofsky

WASHINGTON (Reuters) – U.S. leaders should be open to the possibility of a second stimulus package to jolt the economy out of a recession still causing job losses, House of Representatives Majority Leader Steny Hoyer said on Tuesday.

But in the Senate, Majority Leader Harry Reid was more skeptical of the need for more stimulus spending — an idea that rattled markets fearful that the economy is far from well and corporate earnings could suffer.

Reid said he saw no evidence another stimulus was needed, saying the "shoots" of economic recovery "are now appearing above the ground."

President Barack Obama led the charge for a two-year $787 billion stimulus package that his fellow Democrats who control Congress pushed through the House and Senate in February and he has argued it would help create or save up to 4 million jobs.

Despite continued large job losses, both Reid and Hoyer — who spoke at separate news conferences — said not enough time had passed since first package was approved for it to have the full impact on the U.S. economy, which has been in a recession since December 2007.

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Jim Sinclair’s Commentary

Of course they don’t. Would you?

Big Banks Don’t Want California’s IOUs
By RYAN KNUTSON

A group of the biggest U.S. banks said they would stop accepting California’s IOUs on Friday, adding pressure on the state to close its $26.3 billion annual budget gap.

Dorothy Cottrill of the state controller’s office inspects IOUs last week.

The development is the latest twist in California’s struggle to deal with the effects of the recession. After state leaders failed to agree on budget solutions last week, California began issuing IOUs — or "individual registered warrants" — to hundreds of thousands of creditors. State Controller John Chiang said that without IOUs, California would run out of cash by July’s end.

But now, if California continues to issue the IOUs, creditors will be forced to hold on to them until they mature on Oct. 2, or find other banks to honor them. When the IOUs mature, holders will be paid back directly by the state at an annual 3.75% interest rate. Some banks might also work with creditors to come up with an interim solution, such as extending them a line of credit, said Beth Mills, a California Bankers Association spokeswoman.

Meanwhile, on Monday morning, a budget meeting between Gov. Arnold Schwarzenegger and legislative leaders failed to produce a result. Amid the budget deadlock, Fitch Ratings on Monday dropped California’s bond rating to BBB, down from A minus, the latest in a series of ratings downgrades for the state.

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