In The News Today

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Jim Sinclair’s Commentary comments on Friday’s Green shoot.

– Renewed Caution on Depression-Warped Data 
– November Retail Sales Annual Gain of 1.9% Reflected Return of Inflation
– November Annual CPI Inflation Should Jump by About 2%

"No. 265:  November Retail Sales, Inflation Surge, Data Distortions" – By Subscription

Jim Sinclair’s Commentary

While the Federal Deposit Insurance Corporation is grabbing the headlines every Friday, it is PBGC that is going to be the concern of 2010-2011.

PBGC (Pension Benefit Guarantee Program) is a federal corporation created by the Employee Retirement Income Security Act of 1974. It currently protects the pensions of more than 44 million American workers and retirees in more than 29,000 private single-employer and multi-employer defined benefit pension plans. PBGC receives no funds from general tax revenues. Operations are financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income, assets from pension plans trusteed by PBGC, and recoveries from the companies formerly responsible for the plans.

PBGC Releases Annual Management Report for Fiscal Year 2009

WASHINGTON— The Pension Benefit Guaranty Corporation (PBGC) ended fiscal year 2009 with an overall deficit of $22 billion, according to the agency’s Annual Management Report submitted to Congress today.  The result compares with the $11.2 billion deficit recorded at the previous fiscal year-end on September 30, 2008.   

The deficit in the PBGC’s insurance program for single-employer pension plans widened to $21.1 billion for the year, $10.4 billion more than the prior-year’s $10.7 billion shortfall. The separate insurance program for multi-employer pension plans posted a deficit of $869 million, exceeding last year’s $473 million shortfall by $396 million.  

In an interim report to Congress in May, the agency showed a record deficit of $33.5 billion, based on unaudited numbers at the fiscal year mid-point on March 31.  

The Annual Management Report classified 27 large pension plans with total underfunding of $1.64 billion as probable losses on the PBGC balance sheet. The report also shows that the agency’s potential exposure to future pension losses from financially weak companies increased to about $168 billion from the $47 billion booked in fiscal year 2008.

"Exposure to possible future terminations means that we could face much higher deficits in the future," said Acting Director Vincent K. Snowbarger. "We won’t fail to meet our obligations to retirees, but ultimately we will need a long-term solution to stabilize the pension insurance program."


Jim Sinclair’s Commentary

The execution of a financial transactor

China executes corrupt securities trader
Former manager of financial company never told where he hid millions
updated 1:35 p.m. PT, Tues., Dec . 8, 2009

BEIJING – China executed Tuesday the former manager of a securities company who embezzled millions of dollars — the first execution of an executive from the communist country’s financial sector, state media said.

Some wanted Yang Yanming kept alive so he would explain where the 65 million yuan ($9.5 million) went, news reports said. Yang refused to tell.

China has also executed government officials in its long-running fight against corruption, which is a major source of anger among the country’s citizens.

The Beijing Evening News said Yang was the first person from a Chinese securities company to be executed.

"Someone has to take responsibility in this case," the 51-year-old Yang told a court in Beijing on Tuesday.


Jim Sinclair’s Commentary

The Formula tightens. Not only is there very little economic improvement, but in fact we stand on the threshold of the bankruptcy of state, cities, towns, villages and hamlets.

This has serious implication for unemployment and quality of life.

Paterson says he will hold back cash
By RICK KARLIN, Capitol bureau 
Last updated: 4:24 p.m., Sunday, December 13, 2009

ALBANY — As he had earlier promised, Gov. David Paterson today said he will withhold $750 million in local aid scheduled to go out this week.

That includes more than $500 million in scheduled school aid payments and $112 million to cities and counties. Additionally, the governor will hold back $47 million set to go to health insurance firms that cover state employees, although that is not expected to affect coverage of workers.

Paterson stressed that his actions are payment delays rather than cuts, although he hasn’t precluded making cuts in the 2010-09 budget to be released next month.

The move is likely to provoke a lawsuit from the state Senate, which has been battling the governor over budgetary issues, and it will probably make some towns, cities, counties and school districts borrow money in the short term in order to cover costs such as salaries, benefits and a large payment for retiree pensions coming due in the next several months.

Some localities may even point to this borrowing and consequently raise local property taxes.

The governor said the state is going to run out of money this month, even after it taps its rainy day fund and borrows money from other pots of cash throughout state government.


Jim Sinclair’s Commentary

Add to this Pakistan and Israel’s untenable position and you have a volcanic situation that few (certainly no market participants) are paying any attention to.

A year on, Iran, North Korea threats worsen
Analysis: Both countries press ahead with nuke programs despite sanctions
updated 12:46 p.m. ET, Sun., Dec . 13, 2009

VIENNA – Another year has passed in the world’s standoff with Iran and North Korea over nuclear weapons, and the situation has only gotten worse.

Both countries have pressed ahead with their programs, while the U.N. has stuck to sanctions that seem to have little if any effect, and a slew of other countries are now seen as candidates for the nuclear club.

"The world is worse off than a year ago," says Gao Shangtao, a professor of international relations at China Foreign Affairs University in Beijing, when asked about Iran and North Korea’s defiance.

"They will not give up."

Tensions were already high a year ago. Back then, as the Obama administration was preparing to take office, it heard a chilling assessment from William Perry, President Bill Clinton’s defense secretary when the North Korea crisis first blew up in the early 1990s.


Jim Sinclair’s Commentary

Pretend and Extend until the extension is no longer possible.

Banks Take Losses on Short Sales as Foreclosures Soar (Update2)
By John Gittelsohn and Margaret Collins

Dec. 4 (Bloomberg) — Drew Schlosser tried for two years to sell his three-bedroom Punta Gorda, Florida, waterfront condominium for less than he owed on its two mortgages. The deal only went through last month when Wells Fargo & Co. agreed to take a $165,000 loss on the loans.

Even after he had an offer of $155,000 for the property, it took five months for the San Francisco-based lender to approve the purchase, a so-called short sale, in which the bank accepts less than the balance owed on a property. Schlosser said earlier offers had fallen through as bidders lost faith the bank would take less than the $320,000 in two mortgages.

“It was just kind of a mess,” said Schlosser, 31, a market research company director living in Estero, Florida. “You really have to get buyers who are patient.”

Banks are beginning to go along with short sales in increasing numbers, three years into a U.S. housing slump that pushed the economy into a recession and cut resale values by 30 percent from the peak in July 2006. Short sales almost tripled to 40,000 in the first six months of 2009 from the same period a year earlier. Yet for each short sale, there were 25 foreclosures started or completed in the first half of this year, according to data from the Office of Thrift Supervision and the Office of the Comptroller of the Currency.

“It’s really finally dawning on banks that they’re better off with a short sale,” said Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles. “I think banks were in denial.”



Jim Sinclair’s Commentary

Retail sales indicate an improving economy? You have to be kidding.

U.S. Foreclosures to Reach Record 3.9 Million in 2009 (Update1)
By Dan Levy

Dec. 10 (Bloomberg) — Foreclosure filings in the U.S. will reach a record for the second consecutive year with 3.9 million notices sent to homeowners in default, RealtyTrac Inc. said.

This year’s filings will surpass 2008’s total of 3.2 million as record unemployment and price erosion batter the housing market, the Irvine, California-based company said.

“We are a long way from a recovery,” John Quigley, economics professor at the University of California, Berkeley, said in an interview. “You can’t start to see improvement in the housing market until after unemployment peaks.”

Foreclosure filings exceeded 300,000 for the ninth straight month in November, RealtyTrac said today. A weak labor market and tight credit are “formidable headwinds” for the economy, Federal Reserve Chairman Ben S. Bernanke said in a Dec. 7 speech in Washington. The 7.2 million jobs lost since the recession began in December 2007 are the most of any postwar economic slump, Labor Department data show. Unemployment, at 10 percent last month, won’t peak until the first quarter, Quigley said.

Through November, U.S. lenders had permanently modified about 31,000 of the 4 million mortgages targeted for relief by the Obama administration’s foreclosure prevention plan. That’s less than 5 percent of eligible loans, the Treasury Department said today.


Jim Sinclair’s Commentary

No cheers on the floor on this because it will in all probability get swept under the media carpet.

October’s Transportation Services Index tumbles to eight-year low

In October, the Transportation Services Index (TSI) fell 0.9 percent from September’s level to 98.0 — the lowest October index since 2001, according to the U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS). The TSI also declined 8.7 percent compared with October 2008’s index.

October’s Freight TSI decreased 1.2 percent from September level’s level to 94.5, the lowest October index since 1996 and second-straight month-over-month decline. The Freight TSI also fell 10.5 percent from October 2008’s level — the largest October-to-October drop in the 20 years BTS has calculated the TSI.

October’s Passenger TSI declined 0.1 percent from September’s level to 110.3. On a year-over-year basis, the index decreased 3.1 percent.