In The News Today

Posted at 11:36 AM (CST) by & filed under In The News.

"Let China sleep, for when the dragon awakes she will shake the world."
–Napoleon Bonaparte, 1803

Dear Friends,

I would suggest that a dollar rally, lower euro and gold is more than just good luck with option expirations and the largest of all US Treasury auctions this week.

Think CIT and Capmark before you listen to suggestions of curtailment of QE or increased central bank interest rates in excess of other major currencies.



Jim Sinclair’s Commentary

Yes, very serious!

It among other things alerts investors to the comical values of commercial real estate loans banks are carrying on their books.

Capmark Financial Files for Bankruptcy

Oct. 26 (Bloomberg) — Capmark Financial Group Inc., the lender owned by Goldman Sachs Group Inc. and KKR & Co., among other companies, filed for bankruptcy protection after posting a second-quarter loss of about $1.6 billion.

The company listed consolidated debt of $21 billion and consolidated assets of $20.1 billion as of June 30, according to Chapter 11 documents filed yesterday in U.S. Bankruptcy Court in Wilmington, Delaware. Forty-three affiliates also sought protection.

Capmark is one of the largest U.S. commercial real estate finance companies, with more than $10 billion in originations, according to Moody’s Investors Service. The company, formerly known as GMAC Commercial Holding Corp., services more than $360 billion of debt.


Jim Sinclair’s Commentary

Equities lower.

U.S. Stocks Retreat on Concern Housing Tax Credit to Phase Out
By Rita Nazareth

Oct. 26 (Bloomberg) — U.S. stocks slid, erasing an early rally, on concern lawmakers will phase out a tax credit for homebuyers and Bank of America Corp. will have to sell shares to pay back its government bailout. The dollar rebounded from a 14- month low against the euro and oil wiped out an early advance.

All 12 shares in a gauge of homebuilders slid. Bank of America sank 3.5 percent on speculation government officials will force the company to raise more capital, while Fifth Third Bancorp, SunTrust Banks Inc. and U.S. Bancorp declined at least 2.8 percent after Rochdale Securities LLC analyst Dick Bove downgraded the shares.


Jim Sinclair’s Commentary

Oops! Now we can have equities lower.

Nelson Says Senate to Extend, Reduce Homebuyer Credit (Update2)
By Ryan J. Donmoyer and Dawn Kopecki

Oct. 26 (Bloomberg) — Senate leaders are negotiating to extend and gradually reduce an $8,000 tax credit for first-time homebuyers through 2010, Senator Bill Nelson of Florida said.

“We should be able to extend that later this week,” Nelson, a Democrat, told reporters traveling today with President Barack Obama on Air Force One to a speech in Jacksonville, Florida.


Jim Sinclair’s Commentary

But the government needs ever increasing amounts of money with no end in sight!

Treasuries Fall as U.S. Begins Record $123 Billion Note Sales
By Cordell Eddings and Susanne Walker

Oct. 26 (Bloomberg) — Treasuries fell, with 10-year note yields touching their highest level in two months, as the U.S. began to sell a record $123 billion of notes to fund its stimulus program and record deficits.

Government securities declined for a fourth day as the Treasury sold of $7 billion of five-year Treasury Inflation Protected Securities at a yield of 0.769 percent. The offering, which drew higher-than-average demand, will be followed by three auctions of fixed-rate notes this week.

“We are still at relatively low yield levels, which in front of so much supply and an economy that seems to be starting to turn the corner, don’t seem justified,” said Ajay Rajadhyaksha, head of U.S. fixed-income strategy in New York at Barclays Plc, one of the 18 primary dealers required to bid at Treasury auctions.


Jim Sinclair’s Commentary

Stop QE and everything will all come falling down including the US dollar in an amazing flop.

S&P 500 Overvalued by 40%, Set to Fall, Smithers Says (Update4)
By Patrick Rial

Oct. 26 (Bloomberg) — The U.S. Standard & Poor’s 500 Index is about 40 percent overvalued and headed for a drop as central banks pull back on securities purchases that pushed up asset prices, according to economist Andrew Smithers.

Declines are likely because banks will need to sell more shares to raise capital, the economist and president of research firm Smithers & Co. said in an Oct. 23 interview at Bloomberg’s Tokyo office. The closing price on Oct. 23 of 1,079.6 was 40 percent above 771.14, a level last seen in March, according to data compiled by Bloomberg.

“Markets are very vulnerable to an end of quantitative easing,” said Smithers, 72, who recommended avoiding stocks in 2000 just as the U.S. benchmark entered a two-year bear market. “Central banks, they’ve got to stop some time and if that happens everything will come down.”


Jim Sinclair’s Commentary

GMAC LLC, the commercial credit arm of GMAC Credit under its new name and independence CAPMARK declared Bankruptcy today.

This represents present conditions in the commercial real estate market presently.

The euro is at 1.5025, not that much above the key level of 1.50, but the direction is up contrary to all the noise of oral intervention of a week ago.


Jim Sinclair’s Commentary

Many entities will be buying gold, but to protect their corporate reserves more than their fellow man.

Pension Funds to Buy Gold as Insurance, McGuire Says (Update2)
By Kim Kyoungwha

Oct. 23 (Bloomberg) — Pension funds will increase gold holdings to acquire “financial insurance,” pushing prices higher as currencies drop, according to Shayne McGuire, director of global research at the Teacher Retirement System of Texas.

“I think the largest institutions like our own are realizing that we barely own any,” McGuire said in an interview in Hong Kong. “The same thing applies to most of the pension funds which manage trillions of dollars in world wealth.”

Record government debt and interest rates close to zero percent are pushing gold higher for a ninth straight year as investors seek to protect their wealth against the prospect of rising inflation and currency debasement. Teacher Retirement, backed by $95 billion in assets, has launched its first internally managed gold fund, worth $250 million, invested in precious metals, mining stocks and exchange-traded funds. McGuire is the portfolio manager of this new fund.

The fund is “a reflection of our interest in gold,” said McGuire, the author of “Buy Gold Now” published in March 2008 that correctly predicted the metal will rally. “That’s mostly because of diversification” that benefits our overall portfolio.

Gold represents only 0.4 percent of total global financial assets valued at around $200 trillion in 2007, McGuire said, adding the future focus for the metal was investment demand.



Jim Sinclair’s Commentary

Now even if you flip burgers for a living you need to have a currency versus cash flow hedge position (a real hedge, not OTC derivative).

Iceland says goodbye to the Big Mac

REYKJAVIK, Iceland – The Big Mac, long a symbol of globalization, has become the latest victim of this tiny island nation’s overexposure to the world financial crisis.

Iceland’s three McDonald’s restaurants — all in the capital Reykjavik — will close next weekend, as the franchise owner gives in to falling profits caused by the collapse in the Icelandic krona.

"The economic situation has just made it too expensive for us," Magnus Ogmundsson, the managing director of Lyst Hr., McDonald’s franchise holder in Iceland, told the Associated Press by telephone on Monday.

Lyst was bound by McDonald’s requirement that it import all the goods required for its restaurants — from packaging to meat and cheeses — from Germany.

Costs had doubled over the past year because of the fall in the krona and high import tariffs on imported goods, Ogmundsson said, making it impossible for the company to raise prices further and remain competitive with competitors that use locally sourced produce



Jim Sinclair’s Commentary

As goes CIT so goes the Middle American economy.

The bond offering to CIT is not altruistic, it is opportunistic.

Skepticism Surrounds CIT’s Plan
Matthew Craft, 10.26.09, 04:30 PM EDT

Should bondholders reject CIT’s attempt to stay afloat?

clip_image001Bond investors should reject the CIT Group’s effort to save itself from bankruptcy, says Sean Egan, president of Egan-Jones Ratings Company. They should also reject CIT’s ready-made backup plan for bankruptcy.

Both would leave the current management team in place and give bondholders a smaller payout than if the beleaguered lender was forced to sell off its assets, he says. In a report released Monday, Egan estimates that CIT should be able to sell its loans and leases for at least 80% of book value. Senior unsecured bondholders could expect to recover 90 cents on the dollar for their investments – a better deal than what CIT has offered.

"The best place for CIT’s assets aren’t under the CIT banner," Egan says.

CIT has asked bond investors to help it eliminate at least $5.7 billion in debt through exchanging their notes for 70 cents to 90 cents on the dollar in new notes and preferred stock. In case the offer fails, it also asked them to approve what’s known as a "prepackaged bankruptcy," which is basically a plan for an orderly reorganization after the company files for Chapter 11 protection. CIT estimates bondholders would get roughly 70 cents on the dollar in this scenario.

The alternatives could be far worse, CIT’s management team warned on Friday. In a presentation, CIT’s management team said those with unsecured claims would likely get between 6 cents and 37 cents on the dollar if the lender goes bankrupt without a restructuring plan already in place. A new $4.5 billion loan from lenders, currently being negotiated, would add to their pain: unsecured bonds would likely get between 2 cents and 34 cents on the dollar, according to CIT’s estimate in its regulatory filing on Monday.