In The News Today

Posted at 5:21 PM (CST) by & filed under In The News.

Dear CIGAs,

Now here is an absolute indication that China and Russia will NOT be using dollars in energy settlements between countries.

This is the real beginning of the rumored trend in hard FACT. It will definitely spread now.

“The countries hope to expand the amount of business they do in their own currencies, rather than the US dollar. However, currently only about 1% of their dealings involve roubles or yuan.”

Russia and China eye $5.5bn deals

Russia is hoping to sign deals worth $5.5bn (£3.5bn) with China as Prime Minister Vladimir Putin visits Beijing.

The deals may lead to Russia selling more oil and gas to China – the world’s second-biggest energy user.

About 30 contracts in infrastructure, energy, mining, transportation and telecoms have been lined up.

Russia is keen to bolster its economy, which President Dmitry Medvedev has said will decline by 7.5% in 2009 – far worse than earlier predicted.

Currency ambition

Trade between Russia and China has risen from less than $10bn to more than $50bn annually over the past six years.

The heart of the relationship is Beijing’s thirst for Russian energy – oil and gas make up more than half of Russian exports to China.

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Jim Sinclair’s Commentary

Unemployment and inflation is a rock and a hard place.

Fed’s Bullard warns on inflation, unemployment
Oct. 11, 2009, 7:20 p.m. EDT

LOS ANGELES (MarketWatch) — Federal Reserve Bank of St. Louis President James Bullard said Sunday that unemployment is headed into double digits, while the medium-term inflation outlook poses more risk than generally believed, according to reported comments.

“Unemployment is leveling off, but we still may be headed toward double digits,” Bullard was quoted as saying in a Bloomberg report.

According to data released earlier this month, the U.S. unemployment rate hit a 26-year high of 9.8% in September.

Bullard also voiced concern that popular perceptions ignore the risk of high inflation.

“I am concerned about a popular narrative in use today … that the output gap must be large since the recession is so severe … [and] any medium-term inflation threat is negligible, even in the face of extraordinarily accommodative monetary policy. I think this narrative overplays the output-gap story,” he was quoted as saying by Dow Jones Newswires.

Bullard — currently a non-voting member of the Federal Open Market Committee but set to have a vote on the policy committee next year — made the remarks at an annual meeting of the National Association of Business Economics.

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Jim Sinclair’s Commentary

According to Jim Rogers:

The 21st century belongs to China

According to Rogers, the 19th century was the era of the British Empire and the 20th century was the U.S.’ heyday. But the 21st century is China’s (though the rest of Asia is definitely going to get a boost too).

The reasons for this are many, but some points brought up by Rogers include the following:

The Chinese want to live like we do;

They are more eager to work;

They are better at saving;

There are 1.5 billion Chinese citizens (and 3 billion people in all of Asia), and we owe them money. They are, according to Rogers, “among the best capitalists in the world.”

 

 

Jim Sinclair’s Commentary

The breaking points is .7150 on the USDX. It will happen as the snow flies on the East Coast.

Dollar Reaches Breaking Point as Banks Shift Reserves (Update2)
By Ye Xie and Anchalee Worrachate

Oct. 12 (Bloomberg) — Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.

Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.

World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.

“Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.”

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Jim Sinclair’s Commentary

Didn’t every talking head on financial TV tell us that this would never happen?

Dollar Reaches Breaking Point as Banks Shift Reserves (Update3)
By Ye Xie and Anchalee Worrachate

Oct. 12 (Bloomberg) — Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.

Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.

World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.

“Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.”

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Jim Sinclair’s Commentary

Here is the argument between the Fed and the White House that is certain to be lost by the Fed.

St. Louis Fed’s Bullard Urges Rule to Guide Asset Purchases
By Steve Matthews

Oct. 12 (Bloomberg) — Federal Reserve Bank of St. Louis President James Bullard repeated his call for a quantitative rule to adjust the Fed’s program to buy $1.75 trillion in assets to account for changing economic conditions.

“There has been little indication of how or whether these amounts might be adjusted given incoming information on economic performance,” he said in a speech yesterday in St. Louis. “It is unclear whether the policy is ultimately consistent with a steady state with inflation at target and output at potential. Confusion is creating uncertainty in financial markets.”

Policy makers cut the benchmark interest rate almost to zero in December 2008 and turned to purchases of Treasury, housing agency and mortgage-backed securities as their main monetary tool. They are now debating when to begin withdrawing record liquidity from the financial system as the economy emerges from the worst recession since the Great Depression.

They said last month the economy has “picked up,” while maintaining their pledge to keep the benchmark interest rate exceptionally low for an “extended period.”

With the rate likely to stay near zero for “a while,” Bullard said, the “key issue is how to think about the asset- purchase program.”

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Jim Sinclair’s Commentary

Do you recall when I told you about OTC derivatives? Read the last line.

Citigroup fined by Finra.

Sources say Citigroup (C) will pay $600,000 to settle charges it failed to supervise international customers, thereby allowing them to avoid dividend taxes. Citigroup has already paid the IRS $24M in taxes to settle claims it concocted derivatives to help clients circumvent taxes.

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Jim Sinclair’s Commentary

Unfortunately, and very sadly, this is true.

Weapons failed US troops during Afghan firefight
Oct 11, 8:28 AM (ET)
By RICHARD LARDNER

WASHINGTON (AP) – In the chaos of an early morning assault on a remote U.S. outpost in eastern Afghanistan, Staff Sgt. Erich Phillips’ M4 carbine quit firing as militant forces surrounded the base. The machine gun he grabbed after tossing the rifle aside didn’t work either.

When the battle in the small village of Wanat ended, nine U.S. soldiers lay dead and 27 more were wounded. A detailed study of the attack by a military historian found that weapons failed repeatedly at a “critical moment” during the firefight on July 13, 2008, putting the outnumbered American troops at risk of being overrun by nearly 200 insurgents.

Which raises the question: Eight years into the war against the Taliban in Afghanistan, do U.S. armed forces have the best guns money can buy?

Despite the military’s insistence that they do, a small but vocal number of troops in Afghanistan and Iraq has complained that the standard-issue M4 rifles need too much maintenance and jam at the worst possible times.

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Jim Sinclair’s Commentary

This is the natural outcome of the Formula.

What makes you think anyone rich outside of Wall Street is making money?

Atlas Shrugged in action: NY governor says “tax the rich” isn’t working
Monday, October 12, 2009

New York Gov. David Paterson observes that revenue from tax increases is running at least 20 percent below government projections and that the wealthy, as a group, were not paying more taxes there.

Thus far, New York had only collected about half of an expected $1 billion in income tax revenues from the state’s wealthiest residents, reports Investor’s Business Daily.

“You heard the mantra, ‘Tax the rich, tax the rich,'” Paterson opines. “We’ve done that. We’ve probably lost jobs and driven people out of the state.”

Paterson is something of an accidental governor, having replaced Elliott Spitzer after his sex scandal drove him from office. Observers note Paterson quickly got rolled over by the big-spending wing of his own party.

The state legislature passed a budget for this year with $6.1 billion in projected new taxes and fees. The budget deal was sealed with steeper rates for folks earning more than $200,000 a year, but curiously called a “millionaire’s tax.”

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Jim Sinclair’s Commentary

Confidence is all that values paper currencies.

The winter is going to be BRUTAL on the dollar. Are you prepared?

Central Banks’ Reserve Shift Ignores Dollar Data
By Brendan Moynihan

Oct. 12 (Bloomberg) — Central banks have been shifting their record reserves into the euro at the expense of the U.S. dollar. Investors may not follow, with America’s saving rate and trade balance data back at levels that prevailed when the European currency was unveiled in 1999.

The CHART OF THE DAY shows the percentage of allocated world currency reserves in dollars has fallen as holdings in euros increased in the past decade, according to quarterly data compiled by the International Monetary Fund. Also tracked are the U.S. personal-saving rate and trade balance as a percentage of gross domestic product.

A second chart shows the Intercontinental Exchange Inc.’s Dollar Index setting lows around the times Bear Stearns Cos. collapsed and Lehman Brothers Holdings Inc. went bankrupt. Short-term interest rate differentials favor the euro over the dollar, though only by 0.75 percentage point, the data show.

The dollar’s position as the world reserve currency has been called into question since reaching an almost three-year high in March. The currency has been under siege as the Treasury sells a record amount of debt to finance a budget deficit that totaled $1.4 trillion in fiscal 2009 ended Sept. 30.

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Jim Sinclair’s Commentary

The key and extremely important part of this article is the revelation of how financial institutions marked up assets including derivatives to produce earnings. Now some are being marked down again. If FASB required mark to true market all the earnings of these financial entities would evaporate immediately. It was this mark up process, especially in OTC derivatives booked as trading profits, that started the present rally, nothing else.

“The four biggest U.S. banks by assets may have to take writedowns on $55 billion of mortgage- collection contracts after marking them up by $11 billion in the second quarter, casting a shadow over earnings.”

Writedowns on Mortgage Servicing Make Even JPMorgan Vulnerable 
By Michael J. Moore

Oct. 12 (Bloomberg) — The four biggest U.S. banks by assets may have to take writedowns on $55 billion of mortgage- collection contracts after marking them up by $11 billion in the second quarter, casting a shadow over earnings.

Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co.wrote up the value of the contracts, known as mortgage-servicing rights or MSRs, by 26 percent in the quarter as mortgage ratesclimbed by about 0.35 percentage point. Net gains on the contracts added more than $1 billion to Wells Fargo’s record earnings in the quarter and $1 billion to JPMorgan’s first-quarter profit.

Mortgage rates fell about 0.26 percentage point in the third quarter, according to Freddie Mac, and servicing costs are rising, meaning the four banks, which handle collections on more than $5.9 trillion of U.S. mortgages, may face writedowns.

“We’re very bearish on MSR valuations,” said Paul Miller, a banking analyst at FBR Capital Markets in Arlington, Virginia. “They are overvalued. There are higher costs associated with the servicing, and we’re very concerned about it.”

The four banks control 56 percent of the market for the contracts, according toInside Mortgage Finance, a Bethesda, Maryland-based newsletter that has covered the industry since 1984. Servicers collect payments from borrowers and pass them on to mortgage lenders or investors, less fees. They also keep records, manage escrow accounts and contact delinquent debtors.

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Jim Sinclair’s Commentary

Surges can backfire. This is the 2nd major attack in the last few days.

At least 40 dead after Pakistan suicide attack
Atrocity demonstrates growing threat posed by Taliban insurgents
By Omar Waraich in Rawalpindi and Andrew Buncombe
Tuesday, 13 October 2009

Taliban kidnappers who attacked Pakistan army’s headquarters over the weekend were planning to hold senior army officers hostage until more than 100 militants were released from the country’s jails, the military has claimed.

The news came as militants launched yet another attack on a military target in the country’s north-west, killing dozens of people in a crowded market with a suicide bombing that emphasised how Taliban insurgents have strengthened their hand by developing ties with sympathetic militants outside of their traditional strongholds.

The strike on a military convoy near the Swat Valley, a suicide bombing, killed 41 people. The Taliban has already claimed responsibility. Officials said 35 civilians and six soldiers died when the bomber hit one of three military vehicles that were passing through a market in the Shangla district. Scores more were injured. “It appears to be a suicide attack. The bomber hit one of three military vehicles that were passing through the busiest market in the district,” a senior police official, Khan Bahadur Khan, told Reuters.

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