Posts Categorized: In The News

Posted by & filed under In The News.

Jim Sinclair’s Commentary

Was this by omission or commission? Greenspan was neither asleep nor stupid. He knew exactly what he was doing.

Greenspan Slept as Off-Books Debt Escaped Scrutiny (Update1)
By Alan Katz and Ian Katz

Oct. 30 (Bloomberg) — As George Miller welcomed 60 bankers to the chandeliered Charlotte City Club one evening in September, the focus was on more than the recent bankruptcy of Lehman Brothers Holdings Inc. From their 31st-floor perch, members of the American Securitization Forum, which Miller leads, fretted about the future of their $10.7 trillion industry

The bankers were warned that a Financial Accounting Standards Board plan would force trillions of dollars back onto balance sheets, requiring cash reserves to soar. Their business of pooling and reselling assets had dropped 47 percent in the first six months of the year, and the industry couldn’t afford another setback.

The next day, Miller, 39, the forum’s executive director, took that message from North Carolina to a Senate hearing in Washington examining the buildup of off-balance-sheet assets. “There are great risks to the financial markets and to the economy of moving forward quickly with bad rules,” he said of FASB’s proposal.

Miller was trying to preserve an accounting rule for off- the-books assets that helped U.S. banks export toxic debt around the world. It is a loophole that Jack Reed, the Rhode Island Democrat who chairs the Senate securities subcommittee, said had contributed “to the severity of the current crisis.”

The damage to date: more than $680 billion dollars in losses and writedowns, about one-third of that by European banks.

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Posted by & filed under In The News.

Dear Friends,

This is not making a direct comparison, but instead speaks to my colleagues that believe the only way velocity of money increases is by a turn for the better in business activity. I will give them that this is the scenario wherein increased monetary stimulus transmits into inflation. What they are ignoring is another more likely scenario which is a significant depreciation of currency, in a short period of time, which we know can look like a long fishing line (straight down). This scenario produces much more intense inflation in the midst of a recession or depression.

The next possibility is significant fiscal stimulation directly on the heels of monetary stimulation which can result in some degree of either alternative listed above.

Regards,
Jim

Global Crisis? This is the real crisis!
Sunday, October 26th, 2008

If you think that the current economic crisis is something that has never happened in history before, you may be wrong! After the collapse of the agriculture sector in Zimbabwe in 2000, the inflation in that country skyrocketed to 231 million percent a year! Just think about it – 231 000 000%! Unemployment went up to 80% and a third of country’s population left it.

Let`s now have a look at the photos that you may not be able to see anywhere else in the world.

Here is a boy getting change in 200 000 dollar notes!

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Jim Sinclair’s Commentary

The article below discuses what could easily have been the quasi-Iceland event.

Be assured it will come to a significant country after a downgrade of their Federal debt.

Note in this article in one dynamics sentence they say Pakistan twice.

IMF bailout lifts Hungarian markets
By David Jolly
Wednesday, October 29, 2008

Hungarian stocks and the currency soared Wednesday after the country secured more than $25 billion in backing from global institutions led by the International Monetary Fund.

Dominique Strauss-Kahn, the IMF managing director said late Tuesday in Washington that a deal to provide Hungary with a €12.5 billion, or $15.7 billion, 17-month stand-by loan arrangement had been reached. The EU said it was ready to provide a loan of €6.5 billion or about $8.1 billion, while the World Bank agreed to provide €1.0 billion, or $1.3 billion.

“The Hungarian authorities have developed a comprehensive policy package that will bolster the economy’s near-term stability and improve its long-term growth potential,” Strauss-Kahn said in the statement. “At the same time it is designed to restore investor confidence and alleviate the stress experienced in recent weeks in the Hungarian financial markets.

The package must still go to the IMF’s executive board for approval in early November.

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Jim Sinclair’s Commentary

From the viewpoint of a person on the executive committee of a NYSE brokerage firm (when that meant something) it is a little hard to believe that no one in this institution had any idea of some massive OTC derivative entered into by a trader.

Here is a neat idea. The rub is if that was done in the US, they would have to empty all maximum-security prisons and re-open Alcatraz in order to hold the OTC derivative gang. Maybe this will happen in a Democratic Administration. Stay tuned.

Those 29 year olds with hundreds of millions of dollars in their Greenwich, CT air conditioned indoor private tennis courts might consider it a good idea to check out to a non-extraditing country and instantly transfer their funds out of the US.

Caisse d’Epargne trader is held

French police have detained a trader for questioning over the loss of 751m euros (£601m) at savings bank Caisse d’Epargne, judicial officials say.

He was taken into custody as part of an inquiry into whether anyone was criminally liable for the loss, made as a result of complex derivative trades.

The bank initially put the loss at 600m euros, but has since revised it upward.

The bank’s top three executives have all resigned since the loss came to light earlier this month.

Chief executive Charles Milhaud stood down after saying he accepted full responsibility for the lost cash and is expected to leave without a pay-off.

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Jim Sinclair’s Commentary

I will give you three guesses who and what are totally responsible for the destruction of mankind, not with a gun but with a scam. Subprime loans, my arse!

Gulf Bank head steps down after losses on derivatives
By Robin Wigglesworth in Abu Dhabi
Published: October 29 2008 02:00 | Last updated: October 29 2008 02:00

The crisis in Kuwait’s banking sector deepened yesterday when the chairman of Gulf Bank resigned over derivatives losses and Fitch Ratings downgraded the bank, the country’s second biggest lender.

Kutayba Al Ghanim replaced his brother, Bassam Al Ghanim, as chairman of Gulf Bank after depositors started to withdraw deposits from the stricken lender on Sunday – the first known bank-run in the region during the crisis – even though the Kuwaiti central bank pledged to support the bank and guarantee all deposits in the country.

Fitch Ratings downgraded Gulf Bank’s individual rating to D from B/C. While affirming the long-term issuer default rating of A+, the agency placed the bank under review for individual downgrades for a “serious lapse” in risk management and possible capital base erosion from “potentially large losses”.

Adding to the bank’s woes, Moody’s Investors Service yesterday placed Gulf Bank’s Aa3 long-term local and foreign-currency deposit ratings, and C bank financial-strength rating on review for possible downgrade. The Prime 1 short-term ratings were not affected, according to the credit rating agency.

“It is completely understandable. I wouldn’t trust them [the ratings agencies] if they hadn’t done this,” said a Gulf Bank spokesman.

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Jim Sinclair`s Commentary

If required, the Fed will pay the many kinds of entities now at the begging bowl loan window to borrow money. Soon a major fiscal stimulation bill requiring more drafts on the Fed’s permanent overdraw facility will be initiated.

I still have one pressing question: Why did the Fed let Lehman go?

Fed Cuts Rate to 1% to Avert Prolonged Recession
By Craig Torres

Oct. 29 (Bloomberg) — The Federal Reserve cut its benchmark interest rate by half a percentage point to 1 percent, matching a half-century low, in an effort to avert the worst U.S. economic downturn in the postwar era.

“Downside risks to growth remain,” the Federal Open Market Committee said today in a statement in Washington. “Recent policy actions, including today’s rate reduction, coordinated interest-rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth.”

Central bankers worldwide are trying to revive credit and stop a self-reinforcing downturn in consumer spending and bank lending from triggering a global recession. Today’s decision follows the half-point reduction the Fed coordinated with the European Central Bank and four other central banks on Oct. 8. Borrowing costs were pared today in Norway and China.

The U.S. economy shrank at a 0.5 percent annual rate last quarter, the most since the 2001 recession, the Commerce Department’s report on gross domestic product will probably show tomorrow. Economists expect the slump to persist in the fourth quarter, according to the median estimate.

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Jim Sinclair`s Commentary

If anyone has the potential of locking on to the real why of this collapse, OTC derivatives, it is Andrew Cuomo.

New York Demands Bonus Pay Data From Citigroup, Wells
By Karen Freifeld

Oct. 29 (Bloomberg) — New York Attorney General Andrew Cuomo sent letters to JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and six other banks that received taxpayer bailout funds, demanding bonus information for top management.

Cuomo said he wanted a “detailed accounting” of expected payments to top executives in the “upcoming bonus season,” including information on the expected bonus pool for this year, according to a copy of the letters sent today. He requested information on bonuses from before and after the banks knew they would receive funds from the Troubled Asset Relief Program.

Cuomo told the boards of directors he thought they were in the best position to respond to the requests because top management has a “significant interest in the size of the bonus pools.” He said he would have “grave concerns” if the expected bonus pool increased in any way as a result of the receipt of taxpayer funds.

“In this new era of corporate responsibility we are entering, boards of directors must step up to the plate and prevent wasteful expenditures of corporate funds on outsized executive bonuses and other unjustified compensation,” Cuomo wrote in the letter.

The other banks are Goldman Sachs Group Inc., Bank of New York Mellon Corp., Merrill Lynch and Co., Morgan Stanley, State Street Corp. and Bank of America Corp. Representatives of the nine firms declined to comment or couldn’t immediately be reached for comment.

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Jim Sinclair`s Commentary

What will the US Treasury fail to guarantee? Lenders will never voluntarily give borrowers any break.

Treasury, FDIC Said to Craft Plan to Curb Foreclosure
By Alison Vekshin and Robert Schmidt

Oct. 29 (Bloomberg) — The U.S. Treasury and the Federal Deposit Insurance Corp. are considering a plan that may provide at least $500 billion in government guarantees for troubled mortgages, according to people familiar with the matter.

The program, which might help millions of homeowners refinance into affordable loans, would require lenders to restructure mortgages based on a borrower’s ability to repay. Under one option, the industry would keep lower monthly payments for five years before raising interest rates, the people said.

FDIC Chairman Sheila Bair discussed the program today at an international deposit insurers conference in Arlington, Virginia, without offering details. “A framework is needed to modify loans on a scale large enough to have a major impact,” Bair said.

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Jim Sinclair`s Commentary

Recall our recent discussion on why gold is the only guarantee of your financial future saying that retirement programs are NO guarantee. This is prolific even if not yet admitted to.

Lockheed, Ryder Drain Cash as Crisis Hammers Pensions
By Pat Wechsler and Edmond Lococo

Oct. 29 (Bloomberg) — A trade group whose members include Lockheed Martin Corp., Dow Chemical Co. and General Motors Corp. is pressing Congress to help close a record $200 billion deficit in U.S. pensions created by this month’s global stock-market collapse.

The Committee on Investment of Employee Benefit Assets is kicking off a lobbying effort today to delay provisions of the Pension Protection Act that it says will force companies to drain cash flow to comply with funding rules set to take effect next year.

“This will be real money that companies will have to come up with,” said Judy Schub, managing director of the Bethesda, Maryland-based group, which represents 110 of the nation’s largest retirement plans holding almost half of U.S. assets. “The law will be forcing people to be taking money out of operations at the worst possible time.”

Aetna Inc., the third-largest U.S. health insurer, said today that pension expenses caused by stock market declines will lop 30 cents to 40 cents a share off next year’s operating earnings.

Ryder System Inc.’s pension contributions will “significantly increase in 2009” and force “cost management” to protect profit, Chief Executive Officer Gregory Swienton told a conference call Oct. 22. The Miami-based, truck-leasing company’s plan had $1.5 billion in assets in 2007 and was underfunded by $1 million, according to Standard & Poor’s Corp.

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Jim Sinclair’s Commentary

For your information.

Turkey bombs PKK targets in N. Iraq
Tue Oct 28, 2008 9:30am EDT

ANKARA (Reuters) – Turkish warplanes bombed Kurdish separatist targets on Tuesday in northern Iraq with the backing of artillery fire from Turkey, the military said.

Violence has increased between Turkish security forces and the separatist rebels of the outlawed Kurdistan Workers Party (PKK) as tensions have risen in predominantly Kurdish southeastern Turkey.

The PKK uses northern Iraq as a base to launch attacks on targets inside Turkey.

The military said it had successfully hit the targets and that planes had returned safely to their Turkish bases. No civilians had been targeted or hit in the raid, it said.

Turkey has stepped up its military response since an attack from the PKK which killed 17 Turkish soldiers this month, and the parliament renewed a mandate earlier this month to allow military raids on separatists in northern Iraq.

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Turkey to face gas shortage if Iranian pipeline delayed

BOTAS, the state-run Petroleum Pipeline Corporation, has warned that the country could face a serious gas shortage at the beginning of 2009 if the pipeline carrying Iranian natural gas to Turkey is not completed on time, Referans daily reported on Monday.

Turkey, heavily dependent on foreign energy supplies, has faced shortage risks posed mainly by Iran’s decision to cut the flow of natural gas to Turkey in previous years. Turkish and Iranian officials agreed to build an additional pipeline to secure the flow in order to avoid a similar situation.

Any halt to the flow of gas is also a matter of concern for the production of electricity, as more than 50 percent of the country’s electricity is produced by natural gas.

Gas flow problems derive from the limited capacity of the existing pipeline, where gas loses compression while passing through Iranian cities on the Tabriz-Urumiyah line.

The amount of gas Turkey received from Iran fell to a level of 4-5 million cubic meters per day, from the expected 18-29 million cubic meters, forcing Turkey to compensate the loss by increasing Russian gas imports.

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Posted by & filed under In The News.

Dear CIGAs,

Keep your eye on the ball.

The Problem is not broken entities. That is a symptom. The basis of the problem is OTC derivatives. That is the foundation that is never addressed. If you treat symptoms without handling the cause the result is more symptoms. Because the aim of remedial actions is improper, there is little chance of a fix, only an ebb and flow in a downward spiral that lacks real intervention.

In competitive shooting it pays to aim, which is the same when attempting to right an economic crisis.

Even the Fed buying these failed special performance contracts mucks up the Fed’s balance sheet without solving the problem. It simply shifts the problem to where more serious trouble could occur, and that is in the credit rating of US Treasuries.

You can say that unless the real target is aimed at, the problem will persist. The problem now however is it is too late. There is no way to net the derivatives as many are written totally naked such as the majority of older credit default derivatives. The ability to net all OTC derivatives died as dislocations began in the ability of the final asset to maintain its value. Credit default derivatives were created on an actuarial type analysis and of course that went boom.

Jim Sinclair’s Commentary

There is no question that Pakistan tightened up its China connection to offset the US. In the final analysis this offsets nothing but complicates everything.

China reiterates support for Pakistan
* Beijing to give Islamabad soft loan, encourage investment by top business corporations

BEIJING: China will stand by Pakistan in all circumstances to safeguard the country’s sovereignty and territorial integrity, while maintaining the existing bonds of their strategic partnership.

This assurance was conveyed to Prime Minister Yousuf Raza Gilani by Chinese leaders during Gilani’s visit to Beijing that concluded on Saturday, Pakistan’s Ambassador to China Masood Khan said.

Gilani, during his interaction with Chinese Prime Minister Wen Jiabao and Chinese People’s Political Consultative Conference Chairman Jia Qingling, was assured that China would continue to help Pakistan meet new challenges in the wake of terrorism and a financial crisis.

China is supportive of Pakistan’s stand on counterterrorism, normalisation of its relations with India and its role as a frontline state to wipe out terrorism, Khan said.

Loan: China assured Pakistan that it would help the country overcome its financial difficulties. Besides giving direct financial help in terms of a soft loan, Chinese leadership will encourage its top-level business corporations to investment more in Pakistan.

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Jim Sinclair’s Commentary

It will be critical how the new president, whoever he, is handles these situations. You can be sure that he will be tested severely by his adversaries in his first six months of office.

US special forces launch rare attack inside Syria
Oct 26 05:54 PM US/Eastern
By ALBERT AJI

DAMASCUS, Syria (AP) – U.S. military helicopters launched an extremely rare attack Sunday on Syrian territory close to the border with Iraq, killing eight people in a strike the government in Damascus condemned as “serious aggression.”

A U.S. military official said the raid by special forces targeted the foreign fighter network that travels through Syria into Iraq. The Americans have been unable to shut the network down in the area because Syria was out of the military’s reach.

“We are taking matters into our own hands,” the official told The Associated Press on condition of anonymity because of the political sensitivity of cross-border raids.

The attack came just days after the commander of U.S. forces in western Iraq said American troops were redoubling efforts to secure the Syrian border, which he called an “uncontrolled” gateway for fighters entering Iraq.

A Syrian government statement said the helicopters attacked the Sukkariyeh Farm near the town of Abu Kamal, five miles inside the Syrian border. Four helicopters attacked a civilian building under construction shortly before sundown and fired on workers inside, the statement said.

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Jim Sinclair’s Commentary

Why shouldn’t a fertilizer manufacturer buy into the US banking industry?

Bank in Southwest Florida being sold to distant buyers
Published: Monday, October 27, 2008 at 1:00 a.m.
Last Modified: Thursday, October 23, 2008 at 8:20 p.m.

Investors from Brazil plan to buy the struggling Riverside Bank of the Gulf Coast for $23 million.

Cape Coral-based Riverside, which has offices in Nokomis and Venice, needed a capital infusion, said Chairman Elmer Tabor. The buyers were looking to get into the U.S. banking business, he said.

It was cheaper for them to buy an existing bank than to spend at least $30 million to start and grow a new one, Taber said.

“From my point of view, it really is a match made in heaven,” he said. “By infusing capital in the bank, it gets you in a position to get back on your growth plan.”

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Jim Sinclair’s Commentary

Here is some good advice when your holdings are in Honest Money in a fake world. This picture was taken of Trader Dan during the rainy season in Houston.

Jim Sinclair’s Commentary

File this relationship in your memory as it will be a topic in the future.

Pakistani PM leaves for Turkey on 5-day official visit
www.chinaview.cn
2008-10-27 19:39:59

ISLAMABAD, Oct. 27 (Xinhua) — Pakistani Prime Minister Syed Yousaf Raza Gillani Monday left for Turkey on a five-day official visit, according to official Associated Press of Pakistan (APP).

Gillani is scheduled to hold bilateral talks with the Turkish leadership in a bid to woo investors and to lobby for the Friends of Pakistan initiative to help the country overcome its financial problems.

“Turkey is our good friend and our relations are not only between the governments, but reach out deep at the people to people level,” he told reporters before boarding his special aircraft for Ankara at the Chaklala Air Base here.

Gillani said he looked forward to the Friends of Pakistan initiative to help the country steer out of the economic crisis it was currently facing.

“Pakistan is an important country and is at the forefront in fighting extremism and terrorism, while spreading the message of peace for the entire world, ” he said.

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Jim Sinclair’s Commentary

Pakistan is more than a simple threat, it is a key element in determining our future. Now watch developments concerning Turkey. The difference is that Turkey will play the victim on the world stage in the upcoming unwind of the entire Middle East.

ANALYSIS-Afghan-Pakistan threat worse for next US president
Mon Oct 27, 2008 1:28pm EDT
By David Morgan

“More disturbing still, analysts say, Pakistan is now facing an existential threat from Islamist militants at a time when the nuclear-armed nation and its new civilian government are engulfed in extraordinarily difficult economic problems.”
WASHINGTON, Oct 27 (Reuters) – The next U.S. president stands to inherit a potentially more dangerous challenge in Afghanistan and Pakistan than the situation that led to the Sept. 11 attacks in 2001.

The situation is so serious that analysts say the incoming administration will need to move quickly on a broad new initiative to address the Pashtun region, which both countries share, with a mix of military pressure and economic aid.

“It will be extremely important to have an effective new strategy right out of the box. They cannot wait for a lengthy transition,” said J. Alexander Thier of the U.S. Institute of Peace, a congressionally funded Washington think tank.

The two U.S. presidential nominees, Democrat Barack Obama and Republican John McCain, have pledged to make Afghanistan a top priority if elected to the White House on Nov. 4.

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Jim Sinclair’s Commentary

This is just a drop in today’s financial disaster bucket.

US to inject $125bln into major banks this week: Treasury
Monday, October 27 12:59 pm

Nine major US banks will receive 125 billion dollars in capital injections this week from the US government, a Treasury official said Monday.

Assistant Treasury Secretary David Nason told CNBC television that “We executed the agreements for the nine institutions late last night so the money will go out the door for these institutions early this week.”

The nine will get half of the 250 billion dollars to be invested by the government in the banks as part of a massive rescue of the financial system.

The nine banks are Citigroup, JPMorgan Chase, Bank of America, Goldman Sachs, Morgan Stanley, Wells Fargo, Bank of New York Mellon, State Street and Merrill Lynch, soon to be taken over by Bank of America.

The remaining 125 billion dollars will go to smaller banks and lenders which agree to the capital for equity program, which includes mandated limits on executive compensation.

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Jim Sinclair’s Commentary

Surprise, surprise!

Smaller US banks fear predators armed with bail-out money
Andrew Clark in New York
Monday October 27 2008 16.53 GMT

America’s smaller banks are claiming they could be vulnerable to government-funded predatory takeovers as their larger rivals enjoy huge cash injections from a $250bn (£157bn) Treasury bail-out.

The list of US banks signing up for government capital swelled to at least 19 today as middle-ranking names including State Street, Capital One and SunTrust announced they were issuing shares to the Treasury in return for about $17bn.

But critics have questioned whether the funds will be put to good use. Lending remains sparse on the high street and there are fears that the recipients will simply hoard the money – or use it to buy smaller players.

Camden Fine, the chief executive of the Independent Community Bankers of America, said it was unfortunate that the US treasury had imposed few conditions on the way the money was used, other than a stipulation that dividend payouts to shareholders must not rise.

“When you have taxpayers’ money used by larger banks to purchase otherwise healthy banks, that just promotes the kind of consolidation that got us into this mess in the first place,” said Fine.

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Look who pays for the bailout
Meet the Henrys (high earners, not rich yet). They make $250,000-plus and get taxed to high heaven. And they’re about to get socked again.
By Shawn Tully with Joan Caplin
Last Updated: October 27, 2008: 12:37 PM ET

(Fortune magazine) — Bill Kwon is the embodiment of the American dream. His father – who was arrested by North Korean Communists in the early 1950s for championing democracy – brought the family from Seoul to Illinois when he was a baby. Bill worked himself ragged pursuing every opportunity America’s heartland offered, never leaving Peoria.

Just out of college, he was earning a six-figure salary at a telecom company and sleeping in his parents’ basement. Now he’s a wealth advisor earning $375,000 at Morgan Stanley (MS, Fortune 500), with a five-bedroom brick home, a minivan, a son in private school, and three younger kids to follow. “My dad never made more than $25,000 a year,” says the burly, outgoing Kwon, 39. “When I was a kid, this was the top neighborhood in Peoria. I never thought I could live here.”

For all his blessings, Kwon gets really steamed when politicians and pundits claim that he and other Americans in his income group aren’t shouldering their “fair share” in taxes and should pay more. Nor does he appreciate being branded as “rich” when it’s far from certain he’ll ever build the kind of lavish nest egg the truly wealthy enjoy, especially after the current market meltdown. “I’m not a trust-fund baby,” says Kwon. “Raising taxes for people at my income level is like being punished for success, for working hard.” Kwon’s total tax bill is already more than $100,000, and the bite is taking an ever-rising share of his raises and bonuses, not to mention his wife’s income as a photographer. Kwon fears that America risks killing the incentive for people like him by shrinking the rewards for logging extra hours or starting a business, diminishing the dream that brought his father from Korea.

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Posted by & filed under In The News.

Dear CIGAs,

Here is someone that understands when paper currency fails, the nationality of that currency increases their transactions in a flight to defend themselves. This can be seen recently in the runs on grocery stores in Iceland. That explodes the velocity of money upwards and delivers hyperinflation right in the middle of a recession and/or depression. It is happening right now, just look far North.

See the closing statement in my Formula that was first presented in its entirety in 2006. It addresses this predictable piece of nonsense that you cannot have hyperinflation in a full-fledged depression. This is total balderdash!

GEAB N28 is available! Global systemic crisis Alert – Summer 2009: The US government defaults on its debt
– Public announcement GEAB N28 (October 16, 2008) –

In this 28th edition of the GEAB, LEAP/E2020 has decided to launch a new global systemic crisis alert. Indeed our researchers anticipate that, before next summer 2009, the US government will default and be prevented to pay back its creditors (holders of US Treasury Bonds, of Fanny May and Freddy Mac shares, etc.). Of course such a bankruptcy will provoke some very negative outcome for all USD-denominated asset holders. According to our team, the period that will then begin should be conducive to the setting up of a « new Dollar » to remedy the problem of default and of induced massive capital drain from the US. The process will result from the following five factors studied in detail further in this GEAB:

  • The recent upward trend of the US Dollar is a direct and temporary consequence of the collapse of stock markets
  • Thanks to its recent « political baptism », the Euro becomes a credible « safe haven » value and therefore provides a « crisis » alternative to the US dollar
  • The US public debt is now swelling uncontrollably
  • The ongoing collapse of US real economy prevents from finding an alternative solution to the country’s defaulting
  • « Strong inflation or hyper-inflation in the US in 2009? », that is the only question.

Studying the case of Iceland can give an idea of the upcoming stages of the crisis. That is what our team has been doing ever since the beginning of 2006. This country indeed provides a good illustration of what the US and the UK should be expecting. It can be considered – and that is what most Icelandic people do today – that the collapse of Iceland’s financial system came from the fact that it was disproportionate to the size of the country’s economy.

Financially speaking, Iceland thought of itself as UK (1), in the same way as, financially speaking, UK thought of itself as the US and the US thought of themselves as the entire world. It is therefore quite useful to study the case of Iceland (2) in order to understand the course of events that London and Washington will follow in the next 12 months (3).

What we see today is a double historical phenomenon:

. on the one hand, since September 2008 (as anticipated in the February 2008 edition of the GEAB – N°22), the whole planet has become aware that a global systemic crisis is unfolding, characterised by the collapse of the US financial system and its contagion to the rest of the world.

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Jim Sinclair’s Commentary

Today it was the Federal Reserve providing funds to the US Treasury which in turn provided the funds to the Exchange Stabilization Fund. The ESF then used the funds to buy key Dow stocks when the US Equity Index open was limit down at minus 550 points. The Exchange Stabilization Fund is legally able to do that.

The article would better titled the “US Treasury Invests in Everything.” That is money into the system, just like buying bonds. The difference is the money goes to the many, not the few.

Treasury Investing in Regional Banks
By Zachary A. Goldfarb, David Cho and Binyamin Appelbaum
Washington Post Staff Writer
Friday, October 24, 2008; 1:15 PM

The Treasury Department plans to announce as early as this afternoon that as many as 22 regional banks — including Capital One of McLean and PNC bank of Pittsburgh — have accepted billions in capital injections from the government that are designed to spur lending and to drive consolidation in the banking industry, according to industry sources.

Separately, Treasury is working on ways to get some of the $700 billion in rescue money granted to it by Congress to insurance companies that are a critical backstop to a wide range of deals, bond issues and leasing arrangements, an industry source said. Treasury officials said that many insurance companies are eligible for government investment because they are regulated as thrift holding companies by the Office of Thrift Supervision.

Concerns about insurers grew this week when Metro and other transit agencies faced demands to pay billions of dollars to their banks as years-old financing deals unraveled. The deals were guaranteed by insurer American International Group, which was taken over by the government last month after it nearly collapsed, and now officials are concerned that other insurers, which report financial results next week, are facing similar problems.

Other banks receiving government money include Regions Bancorp, KeyBank of Cleveland and possibly BB&T, which has a major presence in the Washington area, sources said, speaking on condition of anonymity because the announcement has not been made public. PNC already announced this morning that it would use the Treasury funds to help it buy struggling Midwest bank National City.

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Posted by & filed under General Editorial, In The News.

Jim Sinclair’s Commentary

A small warning: Libor was caught fabricating its data on April 16th 2008. Who knows what lies behind the Libor door when a big lie would be very appreciated by the honest population of Wall Street.

“This game of “smoke and mirrors” took a big blow today with an article that you probably didn’t hear about today. CNBC “bubble-land” TV wouldn’t dare bring this to your attention. The WSJ and Bloomberg reported today that the Libor rate is being misquoted by banks. The Libor is set on the marketplace based on what the banks tell them they paid to borrow. This rate is not set by regulators. The Libor rate is set on trust.

So the banks are lying and saying they are paying a lower rate when they really paid a higher lending rate.

The British Bankers’ Association will speed up the review of the process by which money-market rates are set daily amid concern that some contributors are providing misleading quotes.

The global credit squeeze has raised concern lenders have been manipulating the so-called fixing process to prevent their borrowing costs from escalating, the Bank for International Settlements said in March. Participants have complained about whether banks are submitting accurate information, said Angela Knight, chief executive of the London-based BBA.”
–April 16, 2008

The Libor Lies: Smoke and Mirror Games Continue
Bloomberg
Wednesday, April 16, 2008

Well it was rally time today as the market continues to try to convince itself that the worst is behind us.

I find Wall St. fascinating because so much of it is a game of psychology. Dr. Robert Shiller from Yale describes financial bubbles as mainly being a psychological event. Bubbles tend to start with excitement and profits, are fueled by manias, and then crash in a panic. In between the cycles you will see moments of denial as the people who got in too late refuse to accept that they were the last sucker at the top. Today’s housing market and tech are good examples of this.

I view the stock market right now as being more psychological in how it reacts to news versus your old school technical market. There was a time in the markets where earnings were what mattered and markets were much more predictable as a result.

Today we have a much different market. You have financial TV news networks influencing investment decisions with 100 talking heads that have 100 different opinions. Today’s market also has a much larger pool of short sellers which can make the market move more violently up or down. Finally and most importantly in today’s market you have the the “financial innovation” of Wall St.

This new environment makes things very confusing for the average investor because there is so much information to digest. Its gotten to the point where its almost impossible for any investor(including myself) to predict where we are heading on a short term basis. However, in the long term, fundamentals ALWAYS come back to the market and stocks are then priced appropriately to earnings. Nasdaq 5000 ring a bell?

IMO, Financial innovation’s have become the most dangerous change in the financial markets because it made the stock market more vague or “shady”. Wall St.’s existance is based on trust and confidence. Without trust you would have no financial system. Would you give your money to a bank that you didn’t trust would pay you back?

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