Posts Categorized: In The News

Posted by & filed under In The News.

Dear CIGAs,

Note that the Fed herein confirmed that they will print as many dollars as required. That sounds like infinity if you ignore the most recent BIS figures on derivatives going back one reporting period at one quadrillion, one thousand one hundred and forty-four trillion.

U.S. Details $800 Billion Loan Plans
By EDMUND L. ANDREWS
Published: November 25, 2008

BailoutTrack 

WASHINGTON — The Federal Reserve and the Treasury announced $800 billion in new lending programs on Tuesday, sending a message that they would print as much money as needed to revive the nation’s crippled banking system.

The gargantuan efforts — one to finance loans for consumers, and a bigger one to push down home mortgage rates — were the latest but probably not the last of the federal government’s initiatives to absorb the shocks that began with losses on subprime mortgages and have spread to every corner of the economy.

In the last year, the government has assumed about $7.8 trillion in direct and indirect financial obligations. That is equal to about half the size of the nation’s entire economy and far eclipses the $700 billion that Congress authorized for the Treasury’s financial rescue plan.

Those obligations include about $1.4 trillion that has already been committed to loans, capital infusions to banks and the rescues of firms like Bear Stearns and the American International Group, the troubled insurance conglomerate. But they also include additional trillions in government guarantees on mortgages, bank deposits, commercial loans and money market funds.

The mortgage markets were electrified by the Fed’s announcement that it would swoop in and buy up to $600 billion in debt tied to mortgages guaranteed by Fannie Mae and Freddie Mac. Interest rates on 30-year fixed-rate mortgages fell almost a full percentage point, to 5.5 percent, from 6.3 percent.

But analysts said the program would do little to reduce the tidal wave of foreclosures. That is because most of the foreclosures are on subprime mortgages and other high-risk loans that were not bought or guaranteed by government-sponsored finance companies like Fannie Mae.

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Jim Sinclair’s Commentary

If anyone knows it should certainly be these fellows.

Citigroup says gold could rise above $2,000 next year as world unravels

Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world’s monetary system with liquidity, according to an internal client note from the US bank Citigroup.
By Ambrose Evans-Pritchard
Last Updated: 4:48PM GMT 26 Nov 2008

The bank said the damage caused by the financial excesses of the last quarter century was forcing the world’s authorities to take steps that had never been tried before.

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

"They are throwing the kitchen sink at this," said Tom Fitzpatrick, the bank’s chief technical strategist.

"The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.

"Or it will not work because too much damage has already been done, and we will see continued financial deterioration, causing further economic deterioration, with the risk of a feedback loop. We don’t think this is the more likely outcome, but as each week and month passes, there is a growing danger of vicious circle as confidence erodes," he said.

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Jim Sinclair’s Commentary

There are social implications when a currency totally tanks in the midst of stinking business conditions and excessive liquidity.

A near-riot and parliament besieged: Iceland boiling mad at credit crunch
Published Date: 24 November 2008
By Omar Valdimarsson

THOUSANDS of Icelanders have demonstrated in Reykjavik to demand the resignation of Prime Minister Geir Haarde and Central Bank governor David Oddsson, for failing to stop the country’s financial meltdown.

It was the latest in a series of protests in the capital since October’s banking collapse crippled the island’s economy. At least five people were injured and Hordur Torfason, a well-known singer in Iceland and the main organiser of the protests, said the protests would continue until the government stepped down.

As crowds gathered in the drizzle before the Althing, the Icelandic parliament, on Saturday, Mr Torfason said: "They don’t have our trust and they are no longer legitimate."

The value of the Icelandic krona has been cut in half since January.

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Jim Sinclair’s Commentary

I wonder if a gold junior could take over a few banks, obtain access to the Begging Bowl Loan window and some TARP, plus a little Quantitative Easing funds…

I am kidding of course.

FDIC Expands Process To Allow Bidders Without Bank Charters
Wednesday November 26th, 2008 / 22h36

DOW JONES NEWSWIRES Federal Deposit Insurance Corp., grappling with an unprecedented number of bank failures, will allow parties without bank charters to bid on the deposits and assets of failed institutions.

The FDIC said it will also consider abbreviated information submissions and applications, noting time constraints, but said interested investors must have conditional approval for a charter and meet FDIC standards.

Last week, the FDIC finalized its policy to temporarily back debt issued by banks and thrifts, which government officials hope will shore up confidence in the banking sector.

Twenty-two banks in the U.S. have failed this year, including three more that failed Friday as government officials scrambled to contain the spreading financial turmoil. The failures have hit financial institutions of all sizes this year, from $18.7 million Hume Bank in Missouri to $307 billion Washington Mutual Inc.’s banking operations.

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Posted by & filed under In The News.

Dear CIGAs,

See the section I bolded below – Now we know who is going to step up to the plate and buy Fannie and Freddie debt seeing that the custodial account reports have shown that Foreign Central Banks have been disgorging nearly $100 billion worth of their paper since July of this year! I find it no coincidence that is the exact amount the Fed has announced that they will purchase!  We knew it was just a matter of time before the Fed had to come in and buy FNM and FRE debt since no one else was willing to do so – without that debt having a market there is no way to backstop home mortgages!

Dan

Fed Commits $800 Billion More to Unfreeze Lending (Update2)
By Scott Lanman and Dawn Kopecki

Nov. 25 (Bloomberg) — The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.

The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington.

With today’s announcement, the central bank is starting to use some of the unorthodox policy tools that Chairman Ben S. Bernanke outlined as a Fed governor six years ago. Policy makers are aiming to prevent a financial collapse and stamp out the threat of deflation.

“They’re trying to put funds into the system, trying to unfreeze these markets,” said William Poole, the former St. Louis Fed president, in an interview with Bloomberg Television. “Clearly, the Fed and the Treasury are beginning to take a large amount of credit risk.”

The Fed will purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks and up to $500 billion of mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae, the statement said.

Help for Housing

“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” the Fed said.

Fannie and Freddie bonds rallied. The yield premium on Fannie Mae’s five-year debt over similar-maturity Treasuries tumbled 21.5 basis points to 114.7 basis points as of 8:35 a.m. in New York, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

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Jim Sinclair’s Commentary

You know it is worse than this. They know it is worse than this. It is almost embarrassing to report to you what we all know is pure fabrication.

FDIC Shows Massive Growth In Problem Banks, But The Data Is Still Wishful Thinking

Today, the FDIC issued banking data from the third quarter ended September 30, which showed that the number of insured institutions on the FDIC’s "Problem List" increased from 117 to 171 and the assets of "problem" institutions rose from $78.3 billion to $115.6 billion during the quarter. The FDIC said this is the first time since the middle of 1994 that assets of "problem" institutions have exceeded $100 billion.

The FDIC said during the third quarter 73 institutions were absorbed in mergers, and 9 institutions failed. This was the largest number of failures in a quarter since the third quarter of 1993, when 16 insured institutions failed. Among the failures was Washington Mutual Bank, an insured savings institution with $307 billion in assets and the largest insured institution to fail in the FDIC’s 75-year history. The number of insured commercial banks and savings institutions fell to 8,384 in the third quarter, down from 8,451 at midyear.

The FDIC data also showed that net income of $1.7 billion was the second-lowest since 1990, and loan-loss rates rose to a 17-year high. On a positive note, net interest margins registered improvement.

Like it was in the second quarter (they left-out WaMu), the data the FDIC is issuing on the problem bank assets in the third quarter is misleading. We all know now that Wachovia (NYSE: WB) was near failure at the end of the third quarter and at the very start of the fourth quarter it was merged with Citi (NYSE: C) then later Wells Fargo (NYSE: WFC). Wachovia’s assets base would have easily surpassed the $115.6 billion the FDIC mentioned as the total in the problem list. In addition, yesterday Citi (NYSE: C) needed a U.S. government rescue plan. How can it be that this data is so wrong? Is it the fear factor that they feel would be created if they were truthful. Maybe certain institution don’t qualify as "troubled" but should. They need to look at how they qualify a troubled bank. Assets of troubled institutions should be in the trillions not $100 billion.

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Jim Sinclair’s Commentary

FDIC will guarantee even for a day? Their cash is crashing. They can’t.

They haven’t got the money, just like credit default derivatives guaranteed without any chance of performing.

Who IS FDIC kidding? You?

Goldman to sell $2 billion in FDIC-backed bonds: source
Mon Nov 24, 2008 5:25pm EST

NEW YORK (Reuters) – Goldman Sachs (GS.N) plans to sell at least $2 billion of new debt that will be guaranteed by the Federal Deposit Insurance Corp, with pricing expected Tuesday, according to a market source familiar with the sale.

The debt will mature no later than June 30, 2012, the source said. Goldman Sachs is the sole bookrunner, while Citigroup and Morgan Stanley are joint leads, the source said.

The debt is guaranteed under the FDIC’s Temporary Liquidity Guarantee Program, and investors are watching the deal as a test case for demand under the new program.

The new debt is expected to price at 85 basis points over midswaps, plus or minus 3 basis points, the source said.

Goldman is expected to be the first firm to tap the FDIC’s new program. The FDIC on Friday approved a program to guarantee to banks’ new senior unsecured debt, potentially allowing the firms to issue debt with top "AAA" ratings.

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Jim Sinclair’s Commentary

Don’t compare what is happening now to the Japanese zero bound conditions.

What is below did not happen in Japan on any scale near what has already occurred in the USA and is bound to grow by orders of magnitude.

That comparison is total nonsense that reveals ignorance, not intelligence.

U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit (Update2)
By Mark Pittman and Bob Ivry

Nov. 24 (Bloomberg) — The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.

The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.

When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some Congress members are calling for the Fed to be reined in.

“Whether it’s lending or spending, it’s tax dollars that are going out the window and we end up holding collateral we don’t know anything about,” said Congressman Scott Garrett, a New Jersey Republican who serves on the House Financial Services Committee. “The time has come that we consider what sort of limitations we should be placing on the Fed so that authority returns to elected officials as opposed to appointed ones.”

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Jim Sinclair’s Commentary

1. The bailout begging bowl program will continue to grow according to the US Federal Reserve using the plural of trillions. 
2. The financially Democratic approach, which taxes the haves and uses fiscal stimulation, will be building roads, schools, and financially securing major employers.
3. The combination is out of control while it will produce lower tax revenues. Increase taxes on the haves only means more attorneys to reduce the taxes of the haves. The real taxpayer in the US is the average family.
4. Confidence will be lost as all plans FAIL.

U.S. Approves Plan to Help Citigroup Weather Losses
By ERIC DASH
Published: November 23, 2008

As part of a rescue agreement with federal regulators, Citigroup will effectively halt dividend payments for the next three years and will agree to restrictions on and review of certain executive compensation, it was announced on Monday. The bank will also put in place the Federal Deposit Insurance Corporation’s loan modification plan, which is similar to one it recently announced.

Federal regulators announced late Sunday night that the government had approved a radical plan to stabilize Citigroup in an arrangement in which the government could soak up billions of dollars in losses at the struggling bank. President Bush said on Monday that more such rescues could be arranged if they became necessary.

In pledging similar assistance, President Bush said, “We have made these kind of decisions in the past, made one last night, and if need be we’re going to make these kind of decisions to safeguard our financial system in the future.”

Speaking from the steps of the Treasury Building with Secretary Henry M. Paulson Jr. beside him, the president said Mr. Paulson was working closely with the transition team of President-elect Barack Obama, and that the new president would be kept informed.

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Posted by & filed under In The News.

Dear CIGAs,

Major banks don’t fail, they just fade in another.

Plan to Rescue Citigroup Begins to Emerge
By ERIC DASH and GRETCHEN MORGENSON 5:12 PM ET

Federal regulators were considering a new rescue for Citigroup on Sunday, a step that could mark a third leg of the government’s broader efforts to bolster the nation’s financial industry, according to people briefed on the plan.

Under the proposal, the government would shoulder losses at Citigroup if those losses exceeded certain levels, according to these people, who spoke on the condition that they not be identified because the plan was still under discussion.

If the government should have to take on the bigger losses, it would receive a stake in Citigroup. The banking giant has been brought to its knees by gaping losses on mortgage-related investments.

If approved, the plan could serve as a model for other banks, heralding another shift in the government’s morphing financial rescue. The Treasury Department initially proposed buying troubled assets from banks but then reversed course and began injecting capital directly into financial institutions.

The plan for Citigroup was still under discussion on Sunday afternoon, and it was unclear exactly how the arrangement might work. One question is how Citigroup and the government would determine the level of losses that the bank itself must bear before the government steps in. Another is whether any additional government money for Citigroup, which has already received $25 billion under the initial rescue plan, would come from the $700 billion industry bailout that Congress approved in October or from other sources, like the Federal Reserve or the Federal Deposit Insurance Corporation.

Regulators were debating various terms of the arrangement on Sunday, including whether the government would receive preferred stock or warrants, which are instruments that give holders the right to buy stock. Preferred stock would be more beneficial to taxpayers because Citigroup would pay dividends on those shares; warrants would be more attractive to Citigroup’s existing shareholders, since they would not immediately dilute the value of their investments as much as preferred stock.

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Jim Sinclair’s Commentary

All that is required is the reinstatement of the up trick rule and enforcement of the rules against naked short selling.

New push to curb short-selling
Miriam Steffens
November 24, 2008

COMPANIES whose stocks came under heavy attack last week from short-sellers are hoping that a meeting of international sharemarket regulators will bring some respite, having so far unsuccessfully lobbied Canberra and the market watchdog in Australia.

The chairman of the US Securities and Exchange Commission, Christopher Cox, said on Friday he would convene a telephone conference of international regulators tonight to discuss "urgent regulatory issues" dealing with the sharemarket meltdown, which sent America’s S&P 500 down 8.4 per cent last week and prompted a 7.5 per cent slump on the Australian sharemarket.

"In addressing turbulent market conditions, it is essential not only that regulators act against securities law violations, including abusive short-selling, but also that there be close co-ordination among international markets to avoid regulatory gaps and unintended consequences," Mr Cox said.

The talks would also look at whether recent steps to reduce manipulative short-selling, such as temporary bans, were effective.

The meeting comes after industry groups and companies targeted by short-sellers in Australia started lobbying the chairman of the Australian Securities and Investments Commission, Tony D’Aloisio, and the Minister for Corporate Law, Nick Sherry, last week.

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Jim Sinclair’s Commentary

This is the definition of out of control.

Obama readies with massive US rescue package
Anne Davies, Washington
November 24, 2008 – 7:49AM

President-elect Barack Obama is considering a possible $1.1 trillion economic stimulus package in a bid to create or save 2.5 million jobs as soon as he takes office on January 20.

Senior Democrats today revealed they were pushing Mr Obama to massively up the ante on the $US61 billion rescue plan already rejected by the Senate and President George Bush.

The emergency package is being worked on by Mr Obama’s economic team and senior members of Congress, as economists warn that America now risks the far more serious prospect of a very deep recession and falling prices, similar to the Great Depression.

A formal lannouncement on the package is expected today on Monday US time.

Over the weekend several senior Democrats delivered broad hints about the scale and scope of the new President’s plans, in a round of television interviews designed to reassure the US markets before they open on Monday.

Charles Schumer, the senior Democrat from New York and Joint Economic Committee chairman, told US ABC television that the stimulus package needed to be between $US500 billion ($800 billion) and $US700 billion ($A1.1 triillion).

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Jim Sinclair’s Commentary

Recall your history classes and "Manifest Destiny." These early tests of the new President can get ugly.

Russia president, warships to Venezuela to counter U.S.
Sun Nov 23, 2008 2:24pm EST
By Frank Jack Daniel

CARACAS (Reuters) – Warships, nuclear power, arms sales and perhaps cooperation on oil prices — Russia’s President Dmitry Medvedev is in Venezuela this week with an alarming sounding list to wave under Washington’s nose.

The U.S. government dismisses the importance of Medvedev’s visit on Wednesday to meet Venezuelan President Hugo Chavez and the deployment of several Russian warships for joint military exercises with Venezuelan forces in the Caribbean. It says Russia’s weak navy is no threat and downplays its rivals’ blooming friendship.

But OPEC-member Venezuela is Russia’s first firm ally in the Americas since the Cold War and Moscow sees ties to Chavez as a way to answer U.S. influence close to its borders in the Caucasus.

Russia’s aim to grow its Latin American presence may be hurt by falling oil prices and Barack Obama’s U.S. election win, which could help the United States regain influence lost in the region during the unpopular presidency of George W. Bush.

Still, Chavez has made a career of opposing the U.S. "empire" and he welcomes a heavyweight partner like Russia as an alternative to ties with his main oil client Washington.

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Jim Sinclair’s Commentary

It is out of control.

Events Turning Violent In Iceland
by Eric deCarbonnel
Saturday, November 22, 2008

The Guardian reports that Icelanders demand PM resignation, clash with police:

Icelanders demand PM resignation, clash with police
Reuters, Saturday November 22 2008

REYKJAVIK, Nov 22 (Reuters) – Thousands of Icelanders demonstrated in Reykjavik on Saturday demanding the resignation of Prime Minister Geir Haarde and Central Bank Governor David Oddsson for failing to stop a financial meltdown in the country.

It was the latest in a series of protests in the capital since the financial meltdown that crippled the island’s economy.

Hordur Torfason, a well-known troubadour in Iceland and the main organiser of the protests, said the protests would continue until the government stepped down.

"They don’t have our trust and they are no longer legitimate," Torfason said as the crowds gathered in the drizzle before the Althing, the Icelandic parliament.

A separate group of 200-300 people gathered in front of the city’s main police station demanding the release of a young protester being held there, Icelandic media reported.

Police in riot gear used pepper spray to drive back an attempt to free the protester during which several windows at the police station were shattered. The protester was later released after a fine he had been sentenced to pay was paid.

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Posted by & filed under In The News.

Dear Friends,

What makes you feel that internet brokers are immune to failure?

Battered E*Trade banking on government funds
Fri Nov 21, 2008 5:15pm EST
By Jonathan Spicer

NEW YORK (Reuters) – The troubles at E*Trade Financial Corp (ETFC.O) have worsened and now hinge on whether it can secure U.S. government funds that would bring some relief to its book of bad mortgage loans.

Shares of the discount brokerage tumbled below $1 to its lowest price ever this week, indicating that investors think chances are slim it will secure the $800 million it applied for under the Troubled Asset Relief Program (TARP) rescue program.

Competitors, including Charles Schwab Corp (SCHW.O) and TD Ameritrade Holding Corp (AMTD.O), have said they are loath to bid for the smaller and now very cheap company, but have made no secret they covet E*Trade’s brokerage business, which has kept it afloat despite the drag of its mortgage business.

Roger Freeman, a Barclays Capital analyst attending a business update hosted by Schwab this week, said E*Trade’s existence "depends on whether it gets the TARP."

E*Trade’s survival probably hinges more on whether its customers continue to drive growth, according to analysts. But after a string of quarterly losses, the TARP funding is vital for the near term. But there are serious doubts the company will qualify alongside larger banks whose collapse could further shake a weakened U.S. economy.

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Jim Sinclair’s Commentary

This is a sad, but not that far from the truth if you simply put in some famous names for the financial pirates.

There is no better equation for a global Weimar

* SOMALI PIRATES APPLY TO BECOME BANK, AIM TO ACCESS TARP.
* PAULSON: TARP PIRATE EQUITY IS AN ‘INVESTMENT’ – WILL PAY OFF
* KASHKARI SAYS ‘SOMALI PIRATES ARE ‘FUNDAMENTALLY SOUND’ ‘
* MOODYS UPGRADES SOMALI PIRATES TO AAA
* SOMALI PIRATES IN DISCUSSION TO ACQUIRE CITIBANK
* FED OFFICIALS: AGGRESSIVE EASING WOULD CUT SOMALI PIRATE RISK
* FED AGREED NOV 2 TO TAKE ‘WHATEVER STEPS’ NEEDED FOR SOMALI PIRATES.

Jim Sinclair’s Commentary

The following is yesterday’s three bank failures. How is the FDIC going to guarantee GE debt instruments?

From: http://www.fdic.gov/bank/individual/failed/banklist.html
PFF Bank and Trust, Pomona, CA
Downey Savings and Loan, Newport Beach, CA
The Community Bank, Loganville, GA

FDIC Seizes Three Banks, Expanding Loan-Relief Effort
By Binyamin Appelbaum
Saturday, November 22, 2008; D01

Federal regulators seized three banks last night, including Downey Savings and Loan Association, a large California mortgage lender, expanding what is by far the most expensive crop of bank failures in modern American history and indicating that the pace of failures is increasing.

The Federal Deposit Insurance Corp., which took control of the banks, said holders of about $1.9 billion in Downey mortgage loans who have fallen behind on their payments would now be eligible for reduced monthly payments to help them avoid foreclosure. The unprecedented move in connection with a bank failure expands the agency’s controversial loan-modification program, which is opposed by other parts of the Bush administration.

Downey, with $12.8 billion in assets, is the third-largest bank to fail this year, after Washington Mutual and IndyMac Bancorp. All three institutions were large mortgage lenders focused on the California market and regulated by the Office of Thrift Supervision.

The failure was not a surprise. The company said in a securities filing last week that it expected to be seized by regulators, a highly unusual confession that underscored its desperate straits. Downey was a leading originator of alternative loans called option adjustable-rate mortgages, which work like credit cards, allowing borrowers to pay less than the full amount due each month. As with credit cards, many people borrowed more than they could afford, and default rates on the loans have soared.

Another bank seized last night, PFF Bank and Trust, is also a California thrift, with $3.7 billion in assets. Its bad loans were made mostly to residential developers.

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Jim Sinclair’s Commentary

The powerful know so little about so much, and nothing about OTC derivatives.

If you cannot accurately value them on a daily basis you cannot clear OTC derivatives. All the prior issued OTC derivatives are impossible to list and trade on any exchange.

The following is an excerpt from the Wall Street Journal:

"Senate Agriculture Committee Chairman Tom Harkin, D-Iowa, was expected to introduce a bill Thursday that would put trading of all over-the-counter derivatives, including credit default swaps, onto regulated futures exchanges. "With the value of swaps at a high of some $531 trillion for the middle of this year — 8 1/2 times the world GDP of $62 trillion — it is long past time for accountability in the markets,"

Jim Sinclair’s Commentary

Add to the trillions in donations to the wealthy with what is below and Quantitative Easing assures us that Weimar will not and can not be avoided.

You have only two alternatives. Protect yourself as I have advised or financially perish. What is your choice?

Tracking the $700 Billion Bailout
Friday, November 21, 2008

Dozens of banks and a handful of insurers have applied for funds from the Treasury Department as part of the $700 billion Troubled Asset Relief Program. The Treasury has transferred capital to 30 of these companies and to A.I.G. More are expected to announce their participation in the coming weeks.

Click chart for more…

Bailout

Jim Sinclair’s Commentary

Are deliveries of conversions from certificate to bullion suspended? I do not know.

Mint suspends orders amid rush to buy bullion
The Australian

FEARS of the unknown long-term effects from the global financial crisis have sparked a new gold rush.

With retail and wholesale clients around the world stocking up on the precious metal, the Perth Mint has been forced to suspend orders.

As the World Gold Council reported that the dollar demand for gold reached a quarterly record of $US32 billion ($50.73 billion) in the third quarter, industry insiders said the race to secure physical gold had reached an intensity that had never been witnessed before.

Perth Mint sales and marketing director Ron Currie said the unprecedented demand had forced the Mint to cease orders until January, with staff working seven days a week, 24-hour days, over three shifts to meet orders.

He said Europe was leading the demand, with Russia, Ukraine, Middle East and US all buying — making up 80 per cent of its sales. One European client purchased 30,000 ounces for $33 million.

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Jim Sinclair’s Commentary

What is the problem? It is done every day in the gold market by the paper players here in the US. It was done today on the Dow Jones. The dollar is supported by it only. So why is Poland bitching when no one in the USA seems to care?

Polish watchdog asks prosecutor to probe late share deal

WARSAW, Nov 21 (Reuters) – Poland’s financial and securities regulator KNF said on Friday it had filed a complaint with local prosecutors accusing a "person acting in the name of JP Morgan Securities" of possible market manipulation.  A spokesman in London for JP Morgan Securities, a unit of JPMorgan Chase, declined to comment.

The complaint is connected with transactions that took place on Nov. 12 when late transactions in what newspapers dubbed a "miracle" fixing session on the Warsaw bourse helped the main WIG20 index .WIG20 recover a good chunk of its losses.  The index had been on track that day towards its worst percentage drop this year, falling as much as 10 percent before ending the regular session 9.1 percent lower.  The regulator said a 130 million zloty ($42.8 million) order buying all members of the WIG20 pushed the index to close down just 4.9 percent. Warsaw stock exchange’s continuous session is followed by a fixing auction at which closing prices for most shares are set.

"In the opinion of KNF, the actions taken by a person acting in the name of JP Morgan Securities may be considered a manipulation of a financial instrument," the regulator said in a statement.  "That is why the matter was forwarded to the district prosecutor’s office in Warsaw."  The Polish regulator said the transaction was associated with an open position on the futures market. (Reporting by Chris Borowski; Editing by David Holmes)

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Jim Sinclair’s Commentary

There is one inviting conclusion out there. There is no way to know for sure which banks are broke, so it is better to consider they all are.

Jim Sinclair’s Commentary

You mean the Japanese question the strength of the US dollar just because trillions of new dollars are created regularly in non-transparent use?

Japan economists call for ‘Obama bonds’
By Kosuke Takahashi

TOKYO – Japanese economists, increasingly concerned that the United States might seek to pay its enormous and growing debt obligations in a weakened US dollar, are looking to the possibility of US Treasuries being issued in yen.

The US government needs to borrow at least US$1 trillion in the coming year, excluding the US Treasury’s $700 billion plan to bail out the financial and other industries, said Kazuo Mizuno, chief economist in Tokyo at Mitsubishi UFJ Securities Co, a unit of Japan’s largest publicly traded lender by assets. That amount is likely to grow as the US government continues to rescue failed parts of the economy and has to raise more debt – that is, issue government bonds, or Treasuries – to fund such rescues.

Since 2004, when the amount of the government bond issuance reached an annual average of $400 billion, 94% of new buyers of US government bonds have been foreigners, Mizuno told Asia Times Online.

One measure of the increased concern at the ability of the United States to finance its enormous deficits in the future is the rising cost of credit default swaps bought as protection of Treasury debt. These traded near a record high on Tuesday, with benchmark 10-year contracts on Treasuries increased to 42 basis points, or 0.42 percentage points, from around 20 in early September. The contracts have also risen from below two basis points at the start of the credit crisis in July 2007.

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Jim Sinclair’s Commentary

Gold at $1200 then $1650. The US dollar at .72, .62 and then .52.

It cannot be averted.

OTC derivative dealers have killed more people than most wars, and it is only starting.

The glaring disappointment is the Bank for International Settlement’s finagling with the derivative numbers by computer based netting and model risk analysis. In other words even they are now BS merchants.

America’s Mark-to-Model Banking System (revisited)
Posted on November 20th, 2008

Reflection time – earlier in the year I put together a chart for my own personal use showing all financial institutions Level 1, 2 and 3 assets vs their shareholder equity, tier capital etc. After not too long I realized it was a fairly good guide to troubled financial institutions.

I posted it on the blog on Oct for all of you guys and got emails about it for a month. I think its time to review the chart because it clearly shows why all this is happening and why TARP could not be used to buy distressed assets.

Everyone was focused on Level 3 and glossed right over Level 2, which could be equally as toxic and marked to some sort of internal proprietary modeling system that give these assets much more value than reality. For many of these firms at the top of the list a mere 5% haircut in their Level 2 book renders them insolvent. This is where a lot of that nasty commercial resides.

Citi said today that its balance sheet is not that much different that Chase – by the looks of Chase’s Level 2 assets to equity, they better hope not.

Remember, its not a liquidity problem, its a solvency problem, which this chart clearly shows. The institutions listed here were my top 25 short picks earlier in the year based upon this chart. Some still look good. Please note that I have not updated this chart completely because I have not had the time but since I have not heard of very many banks selling massive amount of bulk assets, I would assume that these numbers have not shrank, more likely grown. -Best Mr Mortgage

America’s Mark-to-Model Banking System

Oct 2nd 2008

Is $700bb really enough?  Buying distressed assets from banks balance sheets is a waste of money. How insolvent are the nation’s leading banks?

Level 1, 2, and 3 assets are ways of classifying a company’s assets based on the degree of certainty around the assets’ underlying value. For example, Level 1 assets can be valued with certainty because they are liquid and have clear market prices. At the other end of the spectrum, Level 3 assets are illiquid and estimating their value requires inputs that are unobservable and reflect management assumptions. Think of it like Prime, Alt-A and subprime mortgage loans for example.

Somehow we have skipped right over Level 2 and are judging bank risk by looking at Level 3. Maybe in a robust credit market full of securitizations and leverage like 2006 this would have been just fine, but not now.  Perhaps this is unfolding in a linear way just like the mortgage crisis beginning with subprime (level 3), now onto Alt-A (level 2), then to Prime (Level 1).  Walls Street did a similar thing last year when it went right to focusing on CDO’s and forgot about all of the toxic whole loans and MBS on the balance sheet.

In the past several months, banks have been very focused on ’selling assets and bringing down leverage’ with the primary focus being on their mostly toxic Level 3 ’assets’.  That would be fine and dandy if their Level 2 ‘assets, which in this market may be equally as hard to value as Level 3, were not up to 20 times greater in Bank of America’s case for example.

The chart below show total Level 1, 2 and 3 ‘assets’. I have been keeping this for many quarters but shown is only Q2. However, if you look at level 2 assets/equity percentages it has been a road map to troubled banks with the exception of a few…but are those really exceptions.

**PLEASE NOTE – Chart below may not reflect accurate shareholder equity – needless to say it is much lower now. (Click to enlarge)2

level-1-2-34

**Note: This chart is a couple of months old numbers may have changed. My Excel is a little rough sometimes at times as well so you can visually look at row amounts vs total assets/equity in order to run your own ratios.

Level 2 ‘assets’ are by definition “Assets that aren’t actively traded, but have quoted market prices for similar instruments – otherwise known as ‘mark to model.’”  Could this be more mortgage debt?  We all know that all ‘modeling’ systems are broken and have been for years so how accurate are these marks, especially if much of this is mortgage debt. Look at the Wachovia line above. They have $160 billion in Level 2 assets.  That number is eerily similar to the amount of toxic Pay Option ARMs they hold.

The Level 2 numbers are so staggering that even a 7.5% haircut across the small group banks below would equal the total write downs by all banks worldwide to date!

Back on May 2nd I posted a story on Merrill playing ‘hide the CDO’ for reference and have updated my chart on 25 of the top financials and their Level 1, 2 and 3 exposure. What I found was astoundinig.  Of the 25 companies I studied, their total assets were $14.6 Trillion, Level 1 assets were a total of $1.3 Trillion, Level 3 assets were only $802 Billion but Level 2 Assets were $7.3 TRILLION!

Are you kidding me! 50% of the group’s total assets were Level 2 “assets that aren’t actively traded, but have quoted market prices for similar instruments – otherwise known as ‘mark to model.”

Wouldn’t it be great if the banks let you mark your investment portfolio to what you believed the assets to be worth on those dreaded days on which you receive a margin call?

All joking aside, this is an absolute disaster in the making. The Treasury does not have enough to take care of many of the nation’s largest banks.  The Fed does not either. As you can see they are OVER their heads in Level 2 and Level 3 ‘assets’, of which much has not been able to be priced for months. Much of it never will. -Best, Mr Mortgage

Level I: Mark to Market – readily observable market prices.

Level II: Assets that aren’t actively traded, but have quoted market prices for similar instruments – otherwise known as ‘mark to model.’

Level III: Assets that have model derived valuations in which one or more significant inputs or significant value drivers are unobservable-otherwise known as ‘mark to myth’ or ‘mark to management’s best guess,’ ‘mark to a hope & a prayer,’ etc…

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Jim Sinclair’s Commentary

The question is how many hedge funds will fail.

It is reasonable to assume that whatever these funds could sell they would have sold before D-Day, leaving only OTC derivatives with no markets.

Hedge funds brace for D-Day
November 14, 2008

Anxiety is sweeping the hedge fund industry before a crucial deadline on Saturday, when investors angered by recent heavy losses are expected to demand the return of billions of dollars.

"Managers have a pretty good feeling for what is coming, and there are significant redemption requests out there,” said Stewart Massey, founding partner of Massey, Quick & Co, an investment consultant that puts money into hedge funds.

Saturday is the last day for thousands of investors to notify hundreds of hedge funds if they want their money back by year’s end.

Hedge funds that require three months notice from investors who wanted to exit by year’s end had a similar deadline on September 30 – also known in the industry as "D-Day.”

More such deadlines loom for funds that allow investors to give less notice before taking their money out, fund managers said.

In the last two days, several prominent fund managers made public predictions that illustrate the depth of gloom now sweeping the $US1.7 trillion ($2.6 trillion) hedge fund industry.

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Jim Sinclair’s Commentary

They are not alone. You said business would be worse in Euro land? Right now that looks like an urban legend.

Freddie Mac says it is worth less than zero
Suzy Jagger in New York

Freddie Mac, the US mortgage giant, yesterday admitted that it is so overwhelmed by its liabilities that without government backing, it would no longer be a viable business. The company said that it had lost $13.7 billion (£9.2 billion) in the third quarter of the year and begged for $13.8 billion from the US Treasury in rescue funds.

The plea for the multibillion-dollar cash injection came just days after Fannie Mae reported a record $29 billion loss for the period and gave warning that it was haemorrhaging cash so rapidly, it might need federal funds by the end of the year to survive.

The US Treasury has been overwhelmed by requests for federal aid in the past few weeks. In addition to setting up a $700 billion bailout fund to take equity stakes in troubled banks, the Treasury is being pressed by the car industry for a cash bailout. Yesterday, Neel Kashkari, the Assistant Treasury Secretary, said that he was under pressure to consider ways of using the $700 billion bailout to stem a surge in foreclosures across the US.

The Freddie Mac request for funds would see the drawing down of part of the $100 billion in emergency reserves that were committed by the Treasury in September. Freddie Mac’s problems during the third quarter fell into two categories – the continuing real-estate slump, which has been accompanied by a sharp increase in mortgage borrowers defaulting on repayments, and a tax-related charge. The company had to admit that it cannot use tax credits listed on its balance sheet as assets, because it has not generated enough taxable income.

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Jim Sinclair’s Commentary

Standard much ado about nothing.

IMF chief: G-20 action plan a significant step toward stronger int’l cooperation

WASHINGTON, Nov. 15 (Xinhua) — The chief of the International Monetary Fund (IMF) on Saturday hailed the action plan agreed at the G-20 summit as a significant step by the international community toward stronger cooperation.

"The most important outcome of this weekend’s meeting is agreement on an action plan and the commitment of all participants to implement the plan vigorously and fully," IMF Managing Director Dominique Strauss-Kahn told a press conference.

"The IMF will give strong support to these efforts, as called for by the G-20," Strauss-Kahn added.

The chief of the 185-member IMF said he was "very pleased" about the G-20 leaders’ strong support for the important role of the Fund in crisis management and the reform of the international financial architecture.

"In addition to helping some member countries that are facing difficult circumstances with rapid and effective support, we have also created a new short-term liquidity facility and continue to review our instruments and facilities," he said.

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Jim Sinclair’s Commentary

Sadly this is the Bear Stearns, Lehman Brothers and most likely GE and GM retirement programs. They are either unfunded or loaded with their own common stock.

Poverty, Pension Fears Drive Japan’s Elderly Citizens to Crime
By Stuart Biggs and Sachiko Sakamaki

Nov. 14 (Bloomberg) — More senior citizens are picking pockets and shoplifting in Japan to cope with cuts in government welfare spending and rising health-care costs in a fast-ageing society.

Criminal offences by people 65 or older doubled to 48,605 in the five years to 2008, the most since police began compiling national statistics in 1978, a Ministry of Justice report said.

Theft is the most common crime of senior citizens, many of whom face declining health, low incomes and a sense of isolation, the report said. Elderly crime may increase in parallel with poverty rates as Japan enters another recession and the budget deficit makes it harder for the government to provide a safety net for people on the fringes of society.

“The elderly are turning to shoplifting as an increasing number of them lack assets and children to depend on,” Masahiro Yamada, a sociology professor at Chuo University in Tokyo and an author of books on income disparity in Japan, said in an interview yesterday. “We won’t see the decline of elderly crimes as long as the income gap continues to rise.”

Crime rates among the elderly are rising as the overall rate for Japan has fallen for five consecutive years after peaking in 2002. Over 60s accounted for 18.9 percent of all crimes last year compared with 3.1 percent in 1978, with shoplifting accounting for 80 percent of the total, the report said.

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