Posted July 5th, 2009 by Jim Sinclair & filed under In The News.

EDUCATION TO PROTECT YOU FROM FABRICATION:

This is not a tip sheet, but a text book covering hundreds of years of market experience from us all. The Compendium is the largest text book ever on coins and currency. The fireside chats are periodic reviews. Your actions are the test and your results are the marks.

Look how rarely we speak publicly.

Our method is to teach using daily markets as the text book and Dan’s charts as a technical analysis manual. Monty teaches general economics as it impacts the topics of his broad international emerging market view.

Please use the tools we offer you.

John Adams, on the importance of a financial education:

"All the perplexities, confusion and distress in America arise not from the defects of the Constitution, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit and circulation."

Jim Sinclair’s Commentary

How the hell is MOPE going to do this when it is MOPE that killed us all to some degree in the first place?

U.S. must restore faith in monetary system
By George Gurley
July 5, 2009

Money is the root of all evil. But, according to Niall Ferguson in “The Ascent of Money,” it’s also the “root of most progress.” Woolgatherers from Rousseau to Marx have dreamed of a society that operated without money. Yet, money and its offspring — credit and debt — have been “as important as any technological innovation in the rise of civilization,” writes Ferguson.

Money in some form has been around since the beginning of time. Shells, beads, stone discs, cattle, gold and silver have performed its roles. But money got really interesting when someone figured out that paper backed by gold could serve as a medium of exchange. A unit of gold held in reserve could be multiplied by issuing units of paper money. It was a kind of magic, which dramatically stimulated economic activity and increased wealth. As long as people had faith that they could redeem their paper for gold, the magic worked.

At some point, however, the magicians created too much money. Excess liquidity drove prices up. Fear overcame euphoria. One day the gong of doom sounded and everyone wanted to exchange paper money for gold. But there wasn’t enough gold in the vaults to cover all the paper money afloat. A moment of epiphany arrived: The paper was worthless. The bubble burst. The financial system collapsed.

We’re living in a modern version of this eternally recurring tale. There are many competing explanations for the current economic meltdown. The web of mistakes and culprits was complex. But the ultimate cause was expansive monetary policy. Low interest rates and excess money supply inflated the bubble, driving up the price of real estate and oil, tempting investors to take outrageous risks and stoking the deadly sin, Greed. This should have been no surprise. Loose monetary policy makes booms and busts inevitable. Now, the government’s colossal bailout and stimulus schemes promise to inflate another bubble — while we’re still recovering from the last.

More…

Jim Sinclair’s Commentary

Hasn’t MOPE blasted out everywhere that discussion of SSCI (Super Sovereign Currency Index) is not a point of interest to the G8 but only to the plus 5? They have been suggesting it is hardly a subject of discussion for the G8 with the implications that the BRICs are not really serious about it.

The Westerners, dollar market wise, have been feeding on this garbage disinformation.

Russia’s Putin to discuss reserve currencies with US Obama in Moscow
3 Jul, 10:39 PM

Russia’s Prime Minister Vladimir Putin may discuss reserve currencies with US President Barack Obama at a breakfast in Moscow next week, Putin’s spokesman said on Thursday.

Putin, who developed a good personal rapport with Obama’s predecessor George W. Bush despite Russia-US relations hitting post-Cold War lows, will have one-and-a-half hour long meeting with Obama during the US president’s first visit to Russia.

"It would be logical to suggest that an exchange of opinions regarding the global economic crisis will take place, in this context the issue of reserve currencies can be raised," said Dmitry Peskov. The meeting’s agenda is still being made final.

The government has been careful to maintain that the key meetings Obama will have will be with President Dmitry Medvedev while Putin, still seen as Russia’s most influential politician, will keep a low profile.

"Mechanisms of cooperation may be discussed at the meeting of the heads of state," Peskov said, when asked if Russia and the US could create an intergovernmental commission for day-to-day cooperation.

More…

Jim Sinclair’s Commentary

Yes, going forward on brand new paper. Looking back at the mountain of nuclear OTC derivative crap, it means nothing.

The present, absolute majority of outstanding OTC derivatives have no standards. No standards means no clearinghouse possible. No clearinghouse possible means they cannot be listed because they cannot be properly valued each day.

These facts make this great news below not news at all. Say hello to MOPE once again.

Clearing key to making derivatives safer: EU
Fri Jul 3, 6:22 am ET

BRUSSELS (Reuters) – Derivatives pose risks on financial markets that central clearing of contracts would mitigate, the European Commission said on Friday, outlining plans that fall short of more radical U.S. steps.

EU Internal Market Commissioner, Charlie McCreevy, opened an investigation into the sector last October, a month after the collapse of Lehman Brothers, a bank heavily involved in the global $600 trillion off-exchange derivatives market.

McCreevy published his findings and policy proposals on Friday which said standardization of contracts — a process already underway — is also needed, as well as the creation of a central data depository to store records of trades.

The plans stop short of more radical steps envisaged by the United States which seek to go beyond centrally clearing over-the-counter trades to shift trading onto exchanges or trading platforms where possible.

"In this respect the Commission will further assess the pros and cons of channeling of further trade flow through transparent and efficient trading venues and the appropriate level of transparency — price, transaction, position — for the variety of derivative markets trading venues," the Commission’s policy document said.

More…

Jim Sinclair’s Commentary

Where minerals can be purchased you will find the Chinese. The industry only thinks "sell to them" and never asks why the Chinese are so ready to buy or tries to join forces.

The answer is simple. If you intend to move away from the dollar you have reasons. When you consider those reason you know a currency event due to QE is on the horizon. You also know what that means to the price of all raw materials, so you buy them first.

All the dopey extractive industry management, like the ones below, see is the Chinese solution to their illiquidity problems brought on in every case without exception by the idiot short of final product derivatives they entered into. Most thought these contracts were FREE money. Free? Like hell it is.

Do not get me wrong. Not every Chinese is a genius either. Dumbo lives everywhere.

The slowest of them all seems to be the ex-patriot Chinese that has lived in the West too long and really believes he now knows it all.

Teck to sell 17 pct stake to China for C$1.7 bln
Fri Jul 3, 2009 10:02am EDT
By Cameron French

TORONTO, July 3 (Reuters) – Canada’s Teck Resources (TCKb.TO) will sell a 17.2 percent equity stake to state-owned China Investment Corp through a private placement that will raise C$1.74 billion ($1.5 billion) and help the miner pay down debt, it said on Friday.

Teck, a top producer of zinc, copper, and metallurgical coal, will sell 101.3 million shares at C$17.21 each, a 7 percent discount to Thursday’s closing price of C$18.50 on the Toronto Stock Exchange.

Despite the discount, Teck’s shares rose 3.2 percent, or 60 Canadian cents to C$19.10 just after markets opened, the biggest gain among base metals miners in Toronto.

The deal, which will give CIC a 6.7 percent voting stake in the company, comes as Chinese companies have been taking advantage of depressed resource prices buy stakes in producers and lock in access to commodities, particularly oil.

However, the deal does not involve an offtake agreement, and Teck said that CIC, a sovereign wealth fund, has said it is acquiring the shares "for investment purposes as a long-term passive financial investor" and has agreed to hold the stock for at least a year after the deal closes in mid-July.

More…

Jim Sinclair’s Commentary

Here is the most recent advertisement for stocking up the political personality retirement fund account.

If you think Swat residents will see five cents on the dollar of this you are nuts.

Pakistan desperately short of money to resettle Swat residents
BY SAEED SHAH
MCCLATCHY NEWSPAPERS

PESHAWAR, Pakistan — Major Western countries, after applauding Pakistan’s military crackdown on Islamic extremists in the Swat valley in the country’s northwest, haven’t pledged the money needed to resettle the population now that the fighting is mostly over, and humanitarian organizations fear that 2 million people will be sent back home before it’s safe to go.

Unless the United States and other allies provide the required money to reconstruct Swat, Pakistan risks losing the "hearts and minds" of those who had to flee the operation that fought the Islamic extremists who’d overrun the region. Islamabad doesn’t have the money, Pakistani officials said.

The rehabilitation cost is estimated at $2.5 billion, according to Lt. Gen. Nadeem Ahmed, the head of the military’s special unit set up to look after the internally displaced.

The national government is expected to announce shortly that the Swat refugees will begin returning later this month. So far, however, the government in Islamabad has promised only $300 million to the North West Frontier Province, mostly to beef up police in Swat.

Ahmed said he was optimistic that the international community would provide money once Pakistan presented its "game plan" for rehabilitating Swat.

More…

Jim Sinclair’s Commentary

Winning the hearts and minds of those folks we are liberating is the key.

U.S. Faces Resentment in Afghan Region
By CARLOTTA GALL
Published: July 2, 2009

LASHKAR GAH, Afghanistan — The mood of the Afghan people has tipped into a popular revolt in some parts of southern Afghanistan, presenting incoming American forces with an even harder job than expected in reversing military losses to the Taliban and winning over the population.

Villagers in some districts have taken up arms against foreign troops to protect their homes or in anger after losing relatives in airstrikes, several community representatives interviewed said. Others have been moved to join the insurgents out of poverty or simply because the Taliban’s influence is so pervasive here

On Thursday morning, 4,000 American Marines began a major offensive to try to take back the region from the strongest Taliban insurgency in the country. The Marines are part of a larger deployment of additional troops being ordered by the new American commander in Afghanistan, Gen. Stanley A. McChrystal, to concentrate not just on killing Taliban fighters but on protecting the population.

Yet Taliban control of the countryside is so extensive in provinces like Kandahar and Helmand that winning districts back will involve tough fighting and may ignite further tensions, residents and local officials warn. The government has no presence in 5 of Helmand’s 13 districts, and in several others, like Nawa, it holds only the district town, where troops and officials live virtually under siege.

More…

Jim Sinclair’s Commentary

An Israeli submarine, one would assume nuclear capable, sailed the Suez yesterday in a clear signal to Iran of it easy reach.

The further the US withdraws from Israel, the greener the olive branch the US offers to those that deny the state of Israel and the closer Israel comes to Iran.

Being in close striking distance for Israel and Iran opens the possibility of an accident that would trigger the unthinkable.

Jim Sinclair’s Commentary

A settlement here, a settlement there.

A submarine here, a few long range F-16s there, a few deep penetration bunker busters shipped during the Bush Administration there.

A capture of some of the Gaza gang on the high seas.

A major miscalculation, and the geopolitical Formula given to you, most unfortunately, will be correct.
Gaza aid boat passengers still in Israeli custody
By Aron Heller, 38 mins ago

JERUSALEM – Most members of a group of foreign peace activists seized at sea by the Israeli navy remained in custody Friday, three days after their failed attempt to run Israel’s blockade of the Gaza Strip, relatives and supporters said.

In the latest attempt by activists to break a crippling two-year blockade of Gaza, a group called the Free Gaza Movement sent the ship loaded with humanitarian supplies and 21 activists and crew from Cyprus.

The Israeli navy intercepted the ship Tuesday after it ignored repeated messages saying it would not be allowed to enter Gaza waters and ordering it to turn back.

Among those still being held Friday were former U.S. Representative Cynthia McKinney and Nobel Peace Prize laureate Mairead Corrigan Maguire, said Sandra Law, mother of detained British activist Alex Harrison.

Law, speaking to The Associated Press from her London home, said her daughter was being held together with other women from the group at Ramle jail, near Ben-Gurion airport. She said she spoke briefly to her daughter on Friday.

More…

Jim Sinclair’s Commentary

The process has begun. It will not be MOPE’d away.

India Joins Russia, China in Questioning U.S. Dollar Dominance
By Mark Deen and Isabelle Mas

July 3 (Bloomberg) — Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, said he is urging the government to diversify its $264.6 billion foreign-exchange reserves and hold fewer dollars.

“The major part of Indian reserves are in dollars — that is something that’s a problem for us,” Tendulkar, chairman of the Prime Minister’s Economic Advisory Council, said in an interview today in Aix-en-Provence, France, where he was attending an economic conference.

Singh is preparing to join leaders from the Group of Eight industrialized nations — the U.S., Japan, Germany, Britain, France, Italy, Canada and Russia — at a summit in Italy next week which is due to tackle the global economy. China and Brazil will also send representative to the G-8 summit.

As the talks have neared, China and Russia have stepped up calls for a rethink of how global currency reserves are composed and managed, underlining a power shift to emerging markets from the developed nations that spawned the financial crisis.

“There should be a system to maintain the stability of the major reserve currencies,” Former Chinese Vice Premier Zeng Peiyan said in a speech in Beijing today, highlighting the nation’s concerns about a global financial system dominated by the dollar.

Fiscal and current-account deficits must be supervised as “your currency is likely to become my problem,” said Zeng, who is now the head of a research center under the government’s top economic planning agency. The People’s Bank of China said June 26 that the International Monetary Fund should manage more of members’ reserves.

More…

Posted July 3rd, 2009 by Jim Sinclair & filed under In The News.

126 Dollar Days to go

Jim Sinclair’s Commentary

The truth in China runs totally juxtapose to the truth according to US media, financial TV and the usual chorus of talking heads, China bashers and so called experts.

The following is a comment made by the Deputy Foreign minister to a group of visiting business people. There was no maybe or conversation on the topic. It was emphatic.

“The financial crisis has fully exposed some shortcomings in the international currency system.

China is not seeking discussions but wants a diversified reserve currency.”

Last week the Bank of China renewed its call for the creation of a super sovereign reserve currency (defined as a basket of currencies) to reduce the dollar’s global domination.

The US media pumped out more MOPE and Spin that China was only talking, having no real intention of demanding any such thing.

The problem is that the upcoming G8 plus 5 summit is going to be all about reduction of dependence on the US dollar. All other subjects of discussion are just diversions.

A change is coming and the timeframe can be measured in months, not a decade.

Jim Sinclair’s Commentary

California IOUs have some value, but for 7 days only.

You think California will be able to pay off these IOUs in 7 days, or even 7 months for that matter?

What do you think this means to business in California? What do you think this means to the worthless guarantees on California municipals? What is next? Los Angeles County 20% five year municipal bonds? Maybe they could get short term loans from the Bloods or the Crips?

Bank of America sets cutoff for redeeming California IOUs
The bank warns it will halt the transactions after July 10. Some other big financial institutions follow suit.
By Tom Petruno
July 3, 2009

Bank of America Corp. set the tone for the banking industry’s response to California’s decision to issue IOUs.

That message, essentially, is this: "We’ll help you for a week. If you can’t get your act together and nail down a budget by then, you’re on your own."

Bank of America announced late Wednesday that it would redeem in full the state’s IOUs (formally, "registered warrants") from current BofA customers who want to cash them in. But the bank set a cutoff date of July 10.

On Thursday, other big banks including Chase, Wells Fargo & Co. and Union Bank followed BofA’s lead, saying they’ll cash the IOUs from customers only through July 10.

Some banks, including City National, didn’t set a cutoff date, but they didn’t preclude doing so at some point. Many credit unions also have agreed to accept the IOUs from customers without setting a time limit, the California Credit Union League said.

The big banks’ hardball strategy will create hardships for their customers if no budget deal is struck soon and the state continues to issue IOUs instead of checks. The state set a redemption date of Oct. 2 for the IOUs, although it said it might redeem them before then if it has the cash. Other lenders may step up to buy the IOUs in the interim, but probably at a discount to face value, unlike the big banks’ redemption programs.

More…

Jim Sinclair’s Commentary

Would it not be reasonable for California citizens to pay their state taxes with IOUs carrying 3.75% interest?

You think things are just dandy with Green Shots popping up everywhere?

What exactly are the suppliers being paid $3.4 billion in IOUs going to pay their workers with?

This is a downward spiral nearing the end point of the Formula wherein non-US consumers of US debt instruments get tired of supporting a dark comedy of errors.

IOUs from California are on their way
By Mike Zapler
Posted: 07/02/2009 05:43:55 PM PDT

SACRAMENTO — With its bank balance careening toward zero, California began sending tens of thousands of IOUs to its creditors on Thursday, the latest black eye for the state and its broken budget system.

Nearly 30,000 IOUs began rolling off state printing presses hours after officials agreed to pay recipients 3.75 percent interest on the notes. California will continue to pay about $3.4 billion of its obligations this month with scrip instead of cash if the governor and legislators don’t soon find a way to balance the state’s books.

It will be the first time since 1992 that vendors, taxpayers and social service providers will receive IOUs, formally known as registered warrants, from the state. The IOUs will mature on Oct. 2 unless banks agree to honor them sooner.

So far, Bank of America, Wells Fargo and Chase have said they will cash IOUs from customers through July 10, state Treasurer Bill Lockyer’s office reported. But as partisan sniping continued in the Capitol on Thursday, it remains far from certain that Gov. Arnold Schwarzenegger and legislators will hatch an agreement by then.

Schwarzenegger was asked at a news conference what he would tell people who receive the IOUs in lieu of actual money.

More…

Jim Sinclair’s Commentary

We should have known that when the FDIC started releasing stats on bank failures Wednesday, this week would be another record. 7 busted banks!

How is that for a Green Shot? You think the Bank of China can’t count?

More…

Jim Sinclair’s Commentary

Here is a suggestion: Shut it down, burn the paper, imprison the manufacturers and distributors.

Give all their wealth to Mother’s T’s order. Prevent them from breeding.

EU body to publish OTC derivatives plan on Friday
07.02.09, 02:28 PM EDT

LONDON, July 2 (Reuters) – The European Commission will publish on Friday its long-awaited policy proposals on how to make the EU’s derivatives market safer, with a focus on centrally clearing trades, one of its senior officials said.

‘We will be publishing our paper tomorrow on the OTC derivatives industry,’ David Wright, deputy head of the Commission’s internal market unit, told a conference.

Wright said the focus would be on central clearing of OTC derivatives trades, confirming a Reuters report on Wednesday.

The report will launch a public consultation before final proposals are drawn up later in the year as part of global efforts to restore confidence in markets shaken by the worst crisis since the 1930s.

Wright also defended the Commission’s draft rules to regulate hedge funds which have been criticised by the industry and Britain for being too draconian and impinging on third country operators.

More…

Jim Sinclair’s Commentary

You know for the equity gang, if you missed this rally, you have missed it, period. This may be all she sung.

Link to audio …

Is Wall Street’s Day of Reckoning Still to Come?
July 02, 2009

“Liar’s Poker” author Michael Lewis hasn’t been a popular guy on Wall Street since he wrote the book 25 years ago. Since then, he has written about finance many times and he is working on a new book about the current financial crisis. Although the banks have been scared and many have been shaken to their foundations, Lewis contends that there may be more upheavals to come. He is also shocked that the Treasury, the SEC and other agencies haven’t really begun to investigate what happened in the subprime mess. He says that when he has interviewed numerous executives from financial institutions, such as AIG’s Financial Products division, they tell him that no one from a regulator has come to try to find out exactly what happened. That fact alone, is simply astonishing.

In interviewing various people at places like AIG, "nobody from the Treausury has shown up" to ask around to find out what happened and what went on. "We don’t know the full extent of the losses in side the institutions." "This crisis is far from over."

More…

Jim Sinclair’s Commentary

Wake up you slumbering Western sheeple! China is not just talking as your media would have you believe. As head of the BRICs they are ACTING!

Relaxing the Renminbi trade rule is a result of the hedge fund frantic shoving of the dollar up and down without season or reason. This removes overt foreign exchange impacts on earnings from cross border trade transactions.

It acts to reduce dollar use and therefore dollar demand as it works its way up the line of transactions.

Renminbi trade rule comes into effect
By Zhang Ran (China Daily)
Updated: 2009-07-03 08:06

China’s central bank yesterday released a rule permitting companies in select cities to settle cross-border trades using the yuan, as part of efforts to reduce reliance on the US dollar for international trade.

Banks will be able to offer yuan settlement services from now on, PBOC said in a statement on its website. It said tax authorities were working on the specific regulations for rebates.

The move, it claimed in the statement, would likely reduce companies’ exposure to foreign exchange risks, increase liquidity in foreign trade and cut transaction costs.

"Companies in China and neighboring countries are facing relatively huge risks of exchange-rate fluctuations because of big swings in the US dollar, the euro and other major settlement currencies in the wake of the global financial crisis," the central bank said.

The government in April said it would allow Shanghai and four cities in the southern Guangdong province – Shenzhen, Guangzhou, Zhuhai and Dongguan – to settle international trade in the yuan on a pilot basis. Companies in these cities, and elsewhere, currently have to convert yuan into dollars or other currencies to settle their export-import bills.

More…

Jim Sinclair’s Commentary

Here is the most recent advertisement for stocking up the political retirement fund.

If you think Swat residents will see five cents on the dollar of this you are nuts.

Pakistan desperately short of money to resettle Swat residents
BY SAEED SHAH
MCCLATCHY NEWSPAPERS

PESHAWAR, Pakistan — Major Western countries, after applauding Pakistan’s military crackdown on Islamic extremists in the Swat valley in the country’s northwest, haven’t pledged the money needed to resettle the population now that the fighting is mostly over, and humanitarian organizations fear that 2 million people will be sent back home before it’s safe to go.

Unless the United States and other allies provide the required money to reconstruct Swat, Pakistan risks losing the "hearts and minds" of those who had to flee the operation that fought the Islamic extremists who’d overrun the region. Islamabad doesn’t have the money, Pakistani officials said.

The rehabilitation cost is estimated at $2.5 billion, according to Lt. Gen. Nadeem Ahmed, the head of the military’s special unit set up to look after the internally displaced.

The national government is expected to announce shortly that the Swat refugees will begin returning later this month. So far, however, the government in Islamabad has promised only $300 million to the North West Frontier Province, mostly to beef up police in Swat.

More…

Jim Sinclair’s Commentary

In this article some noted talking head says that Gold is taking its cue from the US dollar. I am sure he does not know the implications of his statement.

Crude oil, nickel, the long bond market and most everything else does as well. Therefore the market is telling you that the dollar will be the currency event that triggers hyperinflation during dire US business conditions.

Stuff this argument of inflation and deflation then make your opinion on the value of the currency by the name of gold.

Wake up and listen to the market explaining to you what lies in the future. The future is within the next 126 days.

DJ PRECIOUS METALS: Dollar, Pre-Holiday Squaring Hurt NY Gold

Gains posted by the U.S. dollar combined with pre-holiday liquidation to send gold and other precious metals lower Thursday.

August gold fell $10.30 to $931 an ounce on the Comex division of the New York Mercantile Exchange. September silver lost 35.2 cents to $13.408.

"It’s taking its cue from the buck," said Ralph Preston, senior market analyst with Heritage West Financial.

Jim Sinclair’s Commentary

OK, that is two in one day so let’s go for 3 more.

Do you really believe that these banks all just happened to fail this week? MOPE organizes the number of events to make public and when.

This is a practice to habitualize the public to bank failures, therein not increasing the fear of deposits now insured up to $250,000 paper dollars.

Guarantees from the Federal Government are a form of IOU.

Millennium State Bank of Texas fails
Dallas Business Journal – by Chad Eric Watt Staff Writer
Thursday, July 2, 2009, 5:21pm CDT

The Texas Department of Banking on Thursday closed Dallas-based Millennium State Bank of Texas, the first bank failure in Texas this year and the first in the Dallas area in more than a decade.

The six-year-old bank had one office in Dallas on Webb Chapel Road near Interstate 635.

Irving-based State Bank of Texas has acquired essentially all the assets of Millennium, according to the Federal Deposit Insurance Corp.

Seven groups put in bids for Millennium, according to the FDIC.

All depositors of Millennium State Bank will have access to their funds over the July Fourth weekend, according to the FDIC. On Monday July 6, they will automatically become depositors of State Bank of Texas.

More…

Jim Sinclair’s Commentary

Come on we had 4 in 1 day last week. Let’s go for 5 in 2 days this week.

Harvard State Bank assumes Rock River Bank deposits
FDIC: Your deposits are safe
By Vinde Wells – Editor

A Federal Deposit Insurance Corporation (FDIC) official reassured Rock River Bank customers that their money is safe despite the failure of the bank Thursday.

"There is no need for panic. No depositor lost any money," said David T. Lok, senior ombudsman specialist from the FDIC Office of the Ombudsman. "Harvard State Bank assumed all deposits of the Rock River Bank."

Lok answered questions from reporters and customers outside the Oregon bank’s front door Thursday evening while a large group of bank examiners worked inside with local bank employees.

"It is business as usual for our customers," Lok said. "They should continue banking as usual. They can use the ATM, write a check, or use their debit cards."

He said the Rock River Bank branches will be closed on Friday and Saturday for the Fourth of July holiday, but will reopen Monday as Harvard State Bank.

More…

Jim Sinclair’s Commentary

Thanks to the Green Hornet, here is an article that underscore a lesson in arbitrage that I have been labouring to impart to you. It is a key element in today’s bad dream. It is a "New Normal" that when any bankruptcy occurs in the chain, called an OTC derivative, the entire NOMINAL VALUE of that derivative becomes REAL VALUE in liquidation.

This is the legacy of letting Lehman go purposely.

When derivatives go bad: Matthew Goldstein
Reuters, Thursday July 2 2009
By Matthew Goldstein

NEW YORK, July 2 (Reuters) – THUD! That’s the sound a busted derivative trade makes when it lands at the courthouse steps.

Drake Capital Management, once a highflying hedge fund manager that is now winding down its operations, claims it’s still owed some $102 million on a derivatives trade that went kablooie when Lehman Brothers filed for bankruptcy. Like most of Lehman’s thousands of creditors, the New York hedge fund hasn’t been paid a penny.

So Drake has filed a weighty 543-page document in bankruptcy court to press its point. A close look at the Drake filing shows why the Obama administration’s proposal to regulate and rein in these often exotic financial instruments may be easier said then done.

Only five pages of the filing are devoted to the so-called proof of claim, where Drake co-founder Steven Luttrell explains why the hedge fund is still owed money. Most of the remaining 538 pages are what constitutes the actual derivative — the various contractual agreements spelling out the terms of the trades between Drake and Lehman. The agreements date back to August 2004.

To be precise, there wasn’t just a single derivatives trade between Drake and Lehman. In fact, there were many different trades involving a whole assortment of underlying assets including foreign currencies, municipal bonds, corporate bonds and sovereign debt. Drake kept expanding its trading relationship with Lehman by adding on one derivative transaction after another.

More…

EU urges Iran to release British Embassy staff, considers pulling ambassadors in protest
July 2nd, 2009

STOCKHOLM — The European Union demanded on Thursday that Iran release all detained British Embassy staff amid disagreement over how many there were and discussion of a British proposal for the bloc to jointly withdraw all 27 of its ambassadors from the country.

Recalling the diplomats would be an extraordinary move and a powerful signal of EU unity in the wake of Tehran’s postelection crackdown.

But punishing the regime too harshly also risks spoiling chances of making headway on the critical issue of Iran’s disputed nuclear program.

Swedish Foreign Minister Carl Bildt suggested Iran could avoid a widening diplomatic rift by releasing local British Embassy staff who were detained for an alleged role in postelection protests.

Nine local staff were initially detained over the weekend. Iranian state TV on Wednesday said Tehran released all but one of the employees, but Bildt said “more than one” remained in custody.

More…

Posted July 2nd, 2009 by Jim Sinclair & filed under In The News.

Questions Of The Day:

What did the BRICs discuss at their closed door conference that motivated them to turn down the US’s request to attend the meeting as observers only?

What is the inherent message being broadcast by crude’s $40 rise from the low and nickel’s 50% increase in value?

The answer to both is hyperinflation, not an economic event but rather a currency event.

Jim Sinclair’s Commentary

You need to know the facts:

– June Jobs Loss Was 513,000 Net of 
Concurrent Seasonal Factor Bias, 
Likely Topped 700,000 with Birth-Death Machinations 
– Payroll Employment Growth Overstatement 
Could Top 2.5 Million per Year with 
Birth-Death Modeling 
– Annual Payroll Decline Deepened to 4.2%, 
Equal to 1958 Trough and Near 1949 Trough 
– SGS-Alternate Unemployment at 20.6%

BY SUBSCRIPTION – http://www.shadowstats.com

Jim Sinclair’s Commentary

The present administration has a great deal of its magic attached to the outcome of the GM bankruptcy and the creation of a new and profitable ongoing entity.

In order to accomplish this inventoried purchase interest by the government that lacks sustainability, what is required is a recovery that government economists have been sold on the party line and really believe is forthcoming.

Failing success, the administration’s magic will have been spent unwisely.

U.S. Sales Down Sharply in June for GM, Toyota and Chrysler
Ford reports smallest decline and reiterates plan to boost production.
By . Agency France-Presse
July 1, 2009

General Motors posted a 34% drop in June sales Wednesday but said it had managed to increase its retail sales for the fourth consecutive month despite seeking bankruptcy protection. Total sales fell to 176,571 vehicles in June, but GM said its retail sales rose about 10% from May.

Sales for the first half were down 41% to 954,356 vehicles.

Toyota Motor posted a 35% drop in U.S. sales in June, capping a painful first half of 2009 in which sales fell 38% to 770,449 vehicles. The Japanese automaker said it saw an improvement in the second quarter, with sales 11.2% higher than the first quarter of 2009 at 410,777 vehicles.

The Toyota division posted June sales of 114,780 units, down 36% from last June, while the luxury Lexus division saw sales fall 20% to 16,874 vehicles. Total June sales were 131,654 vehicles.

Chrysler posted a 42% sales drop in its first month since emerging from bankruptcy protection, but the automaker said Wednesday it had managed to increase its share of the U.S. retail market.

More…

Jim Sinclair’s Commentary

You can be sure an OTC market will develop in these chits. 25% bid – 35% offered to be the initial market. We shall see.

The next step in the formula is the fatigue of Asia in supporting bad Western monetary habits and QE to infinity to protect the long term 28 year up-trend line in the 30 year US Treasury bond market.

Out of Cash, California Turns to IOUs
New America Media, News Report, Aaron Glantz, Posted: Jul 01, 2009

Editor’s Note: Today, California enters a new fiscal year without a budget, and an estimated deficit of $24 billion. Gov. Arnold Schwarzenegger refuses to sign a budget that raises taxes while Democrats in the state legislature are unwilling to eliminate social services. As the economy worsens and the budget gap becomes larger and even more difficult to close, the state controller is issuing IOUs.

SAN FRANCISCO -– If you’re waiting for a check from the state of California, keep waiting. You won’t be getting it anytime soon.

Whether you’re a student waiting for your financial aid to come through, a taxpayer waiting for a refund, a defense lawyer representing a prisoner on death row, a businessman with a contract, a mental health care provider, or a state-funded community clinic, you won’t be getting any of the money California has promised you.

Instead, starting Wednesday, you can expect an IOU.

More…

Jim Sinclair’s Commentary

Ponder or pay? Probably ponder.

California banks ponder their stance on state IOUs

If you believe your financial institution will stand behind California-issued IOUs, don’t bank on it — yet.

The state planned to issue IOUs as soon as Thursday, after the Legislature failed to remedy a $24.3 billion deficit by the end of the fiscal year. State Controller John Chiang planned to issue $3.4 billion in IOUs that mature on Oct. 1 in place of actual payments by the state.

But as of Wednesday, a week after Chiang announced his plan, some of the largest banks in the region would not say whether they will honor the so-called “registered warrants.”

Wells Fargo N.A., JP Morgan Chase & Co. and Bank of the West all said they had not made a decision on the warrants. California Bank & Trust and City National Bank both said, “no comment.”

“When the state publicly says ‘We’ll be issuing warrants,’ we’ll have a decision made,” said Chase spokesman Gary Kishner.

Kishner said Chase was communicating with the state so it could identify all its options, and its decision would be based on the benefit to customers as well as the bank’s protection.

More…

Jim Sinclair’s Commentary

"As goes Motors so goes the United States."
–Livermore and Seligman

GM warns about bankruptcy implications on stock
THE ASSOCIATED PRESS July 1, 2009, 2:40PM

"There will be no value for common stockholders once the court process has concluded."

General Motors Corp., which is operating under bankruptcy protection, warned investors again Wednesday that it believes there will be no value for common stockholders once the court process has concluded.

In typical cases, existing shareholders are wiped out once a company emerges from bankruptcy. That was the case when Delta Air Lines Inc., the world’s biggest airline operator, emerged from Chapter 11 protection in 2007.

GM said it has noticed continuing high trading volume in GM’s common stock at prices in excess of $1.

"GM management continues to remind investors of its strong belief that there will be no value for the common stockholders in the bankruptcy liquidation process, even under the most optimistic of scenarios," the automaker said in a statement.

"Stockholders of a company in Chapter 11 generally receive value only if all claims of the company’s secured and unsecured creditors are fully satisfied." it said. "In this case, GM management strongly believes all such claims will not be fully satisfied, leading to its conclusion that GM common stock will have no value."

More…

GM’s Forever Bankruptcy
Tue Jun 30, 2009 1:04pm EDT

The Washington Post has dutifully pointed out that the taxpayer may never recover its investment in General Motors (GMGMQ), post-bankruptcy. Assorted debt-pay-down and forward-looking share-price valuations figure into this analysis. But a basic point is being missed: We’ve effectively nationalized GM!

The government’s stake in GM, in a best-case future, represents a kind of market-aided industrial policy. Sure, GM 2.0 is supposed to run itself, but if you believe that, I’ve got a shiny office tower in Detroit to sell you. (Oops! As a taxpayer and stakeholder in GM, I evidently do own a piece of a shiny office tower in Detroit!)

We should, on this very day, forget about ever getting our money back. What we gain from Obama’s management of the GM meltdown is the golden opportunity to convert a huge chunk of our industrial sector to something that more closely resembles the clean-tech economy we have rightly envisioned as our future.

This is one of those times when we should remember that governments can and should productively waste money, while businesses cannot and should not.

More…

Jim Sinclair’s Commentary

This is certain to make the government less popular regardless of whether it is a simple recognition of cost.

Pakistan raises fuel prices 12%
Financial Times
1 July 2009

Pakistan raised fuel prices by approximately 12 per cent on Wednesday, reflecting a rebound in global crude prices and prompting protests from consumers.

“This raise was essentially in line with global trends. We have to keep up with global prices,” said an official from the ministry of petroleum in Islamabad.

The move has revived public criticism of conditions tied to a US$7.6b international monetary fund (IMF) loan to stave off a debt crisis in Pakistan which included a condition to remove government subsidies on energy.

“We have no sovereignty left as a country. Our policies are dictated by the IMF,” said Waseem Akhtar, an Islamabad shopkeeper. “I sold my car last year because the petrol was becoming expensive and I ended up buying a motorcycle. Thanks to the IMF, I will probably now be forced to use a bicycle”.

Chaudhary Saeed, a greengrocer, warned that inflation which has been falling in the past few months “will now shoot up”.

More…

Jim Sinclair’s Commentary

And legislators want to see the financial goal posts lowered for certain residential purchases.

You want Washington running businesses? The new GM will be quite interesting. Maybe selling cars at 50% of the cost to build them would be socially sensitive and good for votes?

Fannie Sees Jump in Overdue Home Loans
By JAMES R. HAGERTY
* JUNE 29, 2009, 4:44 P.M. ET

Fannie Mae reported a steep increase in the percentage of home mortgages with overdue payments.

The government-backed mortgage investor said in a monthly summary released Monday that 3.42% of the single-family mortgages it owns or guarantees were 90 days or more delinquent in April, up from 3.15% a month before.

Fannie’s main rival, Freddie Mac, reported last week that its single-family delinquency rate for May was 2.62%, up from 2.44% in April.

Fannie and Freddie are the main providers of funding for U.S. home mortgages. Although the two companies bought many of the riskier types of home loans in recent years, their main business is in prime mortgages. More prime borrowers have been falling behind as they lose jobs or their incomes fall.

Richard DeKaser, an independent economist in Washington, D.C., blamed the continuing rise in loan delinquencies on the spike in job losses and on what her termed the "evaporation" of home equity amid falling home prices, leaving many borrowers without a cushion when they lose their jobs.

More…

Jim Sinclair’s Commentary

Oxymoron Department or Management of Perspective Economics?

Delinquencies Double on Least-Risky Loans, U.S. Says
By Margaret Chadbourn

June 30 (Bloomberg) — Delinquency rates on the least-risky mortgages more than doubled in the first quarter from a year earlier as U.S. efforts to help homeowners failed to keep pace with job losses that pushed more borrowers toward foreclosure.

Prime mortgages 60 days or more past due climbed to 2.9 percent of such loans through March 31 from 1.1 percent at the same point in 2008, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said today in a report. First-time foreclosure filings on the loans rose 22 percent from the fourth quarter, the report said.

“I’m very concerned about the rise in delinquent mortgages and foreclosure actions,” Comptroller of the Currency John Dugan said in a statement with the report. President Barack Obama’s plan to create “sustainable, payment-reducing modifications is a positive step that should show significant benefits in the coming months,” Dugan said.

Obama’s program, unveiled Feb. 18, aims to help as many as 4 million homeowners by modifying loans and calls for Fannie Mae and Freddie Mac to refinance mortgages for as many as 5 million borrowers who owe more than their houses are worth. Foreclosure filings surpassed 300,000 for a third straight month in May, according to RealtyTrac Inc., and the U.S. economy has shed about 6 million jobs since the recession began in 2007.

“Job losses have mounted and even those with good credit that were able to get a prime mortgage are having a harder time making monthly payments with a loss of income,” said Celia Chen, an economist at Moody’s Economy.com in West Chester, Pennsylvania.

More…

Jim Sinclair’s Commentary

Nothing changes but the spin.

Lives, fortunes, and the Pakistan people could have been rescued if attention was paid to the Pakistan people’s real needs when I first alerted you to the inevitable outcome of policies then in place. These policies pandered to a political retirement fund that is now feeding the recipients quite well.

Surges there and now are totally counterproductive. The West has no respect for their enemy nor the military tactics dating back centuries. History will write this up as the "Greatest Error" of the last administration.

Truthfully the new Administration has inherited the wind directly in their faces. Now, even if they wish to make it right the uphill climb is roughly equivalent to scaling Mt. Everest backwards in a swim suit.

Pakistan will go insurgent after the just completed and extremely effective recruiting program.

EU warns of collapsing Pakistan, upbeat about India ties
Manish Chand
July 1st, 2009

NEW DELHI – Warning of the “danger of the collapse of Pakistan” to the region, the European Union (EU) plans to expand cooperation with India in countering terrorism, with the EU’s counter-terror coordinator expected in New Delhi soon.

“Terrorism is a matter of great concern. We want more cooperation with India in countering terrorism,” Swedish Ambassador to India Lars-Olof Lindgren told IANS in an interview Wednesday, the day Stockholm took over the six-month rotating presidency of the 27-member EU.

“Our cooperation with India in countering terrorism is stronger than before. We plan to cooperate at various levels,” the Swedish envoy said when asked about the EU’s priorities for its forthcoming summit with India Nov 6 in New Delhi.

The EU’s counter-terrorism coordinator Gilles de Kerkove is set to visit India soon, the envoy said.

The envoy, however, trod cautiously on the EU’s aid to Pakistan amid reports that such financial assistance, like the one given by the US, had been allegedly used by Islamabad in the past to fund anti-India terrorist activities.

“A democratic and stable Pakistan is in the interests of all of us. It’s a danger to the region if Pakistan is collapsing,” he replied when asked what India and the EU can do to stop terrorism emanating from Pakistan.

More…

Jim Sinclair’s Commentary

That is a polite statement, but read further and you find the constant word DIVERSIFICATION.

China Seeks ‘Stable’ Dollar, Monetary Diversification (Update2)
By Bloomberg News

July 2 (Bloomberg) — China, the largest holder of foreign currency reserves, reiterated its call for a stable dollar and a diversification of the international monetary system.

“We hope that as the main reserve currency the exchange rate of the U.S. dollar will be stable,” Vice Foreign Minister He Yafei told reporters in Beijing.

The vice minister said he wasn’t aware that China had pushed for the subject of a reserve currency to be on the agenda of this month’s Group of Eight summit, though “if this issue is raised by leaders during the meeting it is nothing strange, it is natural because we are all discussing how to respond to the international crisis.”

China, whose leaders have expressed concern that U.S. government spending to counter a recession will weaken the dollar, cut its holdings of dollar reserves by $4.4 billion in April to $763.5 billion, the latest figures available show. The dollar rose against the euro and erased losses versus the yen after He’s comments.

“The magnitude of China’s foreign-exchange holdings limits its ability to move out of the dollar very quickly without shooting itself in the foot,” said David Cohen, an economist with Action Economics in Singapore. “Finding alternatives is a long-term goal.”

More…

Jim Sinclair’s Commentary

A dollar rally? You have to be kidding.

I am in China and you might say I have been hearing this repeated from the horse’s mouth.

All the MOPE in the world cannot stop the BRICs of which China is the lead voice of the combined intention.

If my math is correct, as it is your tomorrow here, we have 126 days to go.

China requests reserve currency debate at G8 -sources
Wed Jul 1, 2009 1:17pm EDT

July 1 (Reuters) – China has asked to debate proposals for a new global reserve currency at next week’s Group of Eight summit in Italy and the issue could be referred to briefly in the summit statement, G8 sources said on Wednesday.

One G8 source who was involved in the negotiations said China made the request during preparatory talks about a joint statement to be issued on the second day of the summit in L’Aquila by the G8 plus the G5 (Brazil, India, China, Mexico and South Africa) and also Egypt.

This forum, the so-called "G14", meets on July 9 to discuss the financial crisis, trade and climate change and for the first time a G8 summit will also produce a joint G14 statement.

The euro EUR= surged around half a cent to session highs above 1.42 against the dollar immediately after the news.

A European source with knowledge of preparations for the summit also said China had raised the subject of a reserve currency debate and that it might be mentioned during the meeting, though the source added: "Any country at the meeting can raise issues they see fit."

More…

Jim Sinclair’s Commentary

It is a game of MOPE and manipulation of the indices versus the BRICs and a shocking reality of the dollar. There is no way to avoid where all this is going or for that matter when it will occur.

China to Partially Lift Yuan Curbs for Foreign Banks

Foreign banks will be able to buy or borrow yuan from Chinese mainland lenders for the first time to settle trade in Hong Kong and Macau under a pilot scheme steered by the central bank.

The central bank chiefs of China and Hong Kong signed a memorandum on Monday, paving the way for the scheme, which analysts say is a step toward greater international use of the yuan.

According to detailed rules published on Thursday by the People’s Bank of China, foreign banks settling imports and exports in yuan in Hong Kong and Macau will be allowed to buy Chinese currency from mainland banks within certain limits.

The PBOC did not disclose the quotas, which it will set.

The rules make clear that China will be checking to ensure that banks and companies do not try to use the pilot program to get round the country’s capital controls.

To that end, any yuan loans must be supported by trade documentation.

"Domestic settlement banks should take effective measures to know the nature and purpose of their clients’ trading," the PBOC said.

More…

Jim Sinclair’s Commentary

Here is a world class example of closing the gate after the horse has escaped.

Swaps, Credit Scoring on Tap for NCOIL Meeting
Wed. July 01, 2009; Posted: 04:38 PM

The National Conference of Insurance Legislators plans to address a full plate of issues, including credit default swaps and credit-based insurance scoring, at its summer meeting in Philadelphia.

Despite movements on the federal level to rein in the use of credit default swaps, the issue will be a centerpiece of the July 9-12 meeting, officials said. A proposed NCOIL model law would identify such derivatives, the use of which has caught much of the blame for the near-collapse of American International Group Inc. (NYSE:AIG) as insurance products.

The Commodity Futures Modernization Act, passed by Congress and signed by President Bill Clinton nine years ago, pre-empted states regulating swaps under gaming and so-called "bucket shop" laws (BestWire, Feb. 4, 2009). But by identifying covered swaps, where the purchaser holds an interest in the underlying security and is acting to hedge exposure, as insurance products and banning the use of speculative "naked" swaps, the model asserts states’ rights to action, NCOIL Executive Director Susan Nolan said.

"They’re not going to sit around and wait. We don’t know what’s going to happen in Washington," she said.

NCOIL will also review how to best respond to efforts by the Obama administration and members of Congress to take a larger federal role in insurance regulation, Nolan said. NCOIL will continue to advocate for state-based solutions to insurance issues and strict limits on federal involvement, she said. The meeting will also include a roundtable discussion on systemic risk regulation.

More…

Posted July 1st, 2009 by Jim Sinclair & filed under In The News.

Dear CIGAs,

In case you missed it China announced a few days ago that they have made the decision to increase strategic energy supplies. That means here and at the general market range. This has to tell you something about their serious concern for the level of the dollar as hyperinflation is a currency event, not an economic supply/demand event.

Jim Sinclair’s Commentary

A fast, clean, painless GM bankruptcy. That is the equivalent of the Great Depression of a jumbo shrimp.

Perils ahead in GM bankruptcy include liquidation, pension shortfall

We’ve got a new D-Day in the historic General Motors Corp. bankruptcy: If the automaker’s good assets cannot be sold to a "New GM" by July 10, CEO Fritz Henderson told a bankruptcy judge in New York today, the company will be forced to begin liquidation proceedings.

Leave it to Henderson, nothing if not direct, to cut to the heart of GM’s existential predicament. Is it yet another riff on the "shock-and-awe" strategy popularized last fall, which posited that a collapse of GM into bankruptcy or worse would prove cataclysmic for the national economy and, certainly, the Midwest. Yes, it is.

And, to a point, it’s probably true — emphasis on the "to a point" part. Team Obama may be intent on getting a speedy resolution to this silly little thing called the largest industrial bankruptcy in American history. And its Treasury Department has a penchant, at least in the Detroit Auto space, for setting tight deadlines and meeting them. But I’m not at all convinced the boss and his minions would let the General collapse into a heap of cut-rate auctions if the judge drags his feet.

Too much to lose. Too much political capital investment, even by the president. Too much danger to organized labor, the staying power of GM’s pension fund and auto communities in the Heartland. Indeed, an emerging fear — emerging, at least, in the public consciousness — is the likelihood that GM is burning its pension fund on buy-outs and early retirements at a faster rate than anticipated, as the New York Times details in an important story story posted late today. The danger is that pension obligations will run ahead of GM’s ability to pay them, meaning U.S. taxpayers would foot the difference through the entity known as the Pension Benefit Guaranty Corp.

"GM basically raided the pension plan, by having a lot of these severance benefits paid through it," Douglas J. Elliott, a fellow with the Brookings Institution who specializes in financial institutions and policy, told The Times. Active workers "could find that they don’t get their full pensions when they retire, because the plan has had to be terminated because of the payments to current retirees. There are definitely these intergenerational transfer issues with underfunded pensions."

More…

Jim Sinclair’s Commentary

I am not sure that Mr. Leahy is familiar with India’s tradition of having their wives wear the bank.

Certainly the new India and the make believe world of Bollywood is a large group of speculators ripe for the picking.

In general the chance of mobilizing the majority of Indian gold is well below zero.

India gold dealers tap domestic stocks
By Joe Leahy in Mumbai
Published: June 29 2009 18:52 | Last updated: June 29 2009 18:52

Indians are set to begin trading on Tuesday on the country’s new gold bullion market in a move likely to mobilise the thousands of tonnes of the precious metal that people keep hidden under their beds as savings.

The National Spot Exchange, controlled by Financial Technologies, the Indian market company, will begin offering contracts for domestic gold bullion, ranging in size from 8g to 1kg.

“Though India has a huge household stock of around 20,000 to 25,000 tonnes of gold, there was no single market available where this could be sold,” said Anjani Sinha, managing director and chief executive of the National Spot Exchange.

Indians have saved in gold for millennia. The country is the world’s largest consumer of the metal, importing nearly 800 tonnes a year, or 20 per cent of global demand.

But while there is a modern market for the import of bullion, once it enters India, there is no transparent exchange for its resale and conversion back into bullion.

More…

Posted June 30th, 2009 by Jim Sinclair & filed under In The News.

Dear CIGAs,

JB Slear asks what is in your garage?

Jim Sinclair’s Commentary

There are green shoots here. I know it. Just a minute now, I will find them.

Jim Sinclair’s Commentary

States are bracing for shutdowns. Other states are right behind California.

The Formula of 2006 is so far on the money, yet few will yet accept the final outcome as it pertains to the US dollar.

Despite the Formula being correct so far, many still doubt its position on the US dollar and gold.

States brace for shutdowns
Time is running out for the legislatures in Arizona, California, Indiana, Mississippi and Pennsylvania to solve budget gaps.
By P.J. Huffstutter and Nicholas Riccardi 
June 30, 2009

Reporting from Indianapolis and Denver — The last time Indiana missed its deadline for passing a budget and had to shut down the government was during the Civil War.

But on Monday, as lawmakers raced to hammer out an agreement over school funding, state agencies began preparing 31,000 workers to be temporarily out of a job. Republican Gov. Mitch Daniels has warned residents that most of the state’s services — including its parks, the Bureau of Motor Vehicles and state-regulated casinos — would be shuttered unless a budget is passed today.

More…

Jim Sinclair’s Commentary

Five on the 26th. Is that not a one week record?

Five More Banks Closed by Regulators
Total Failures so Far: 50 Banks and Credit Unions in 2009
June 29, 2009 – Linda McGlasson, Managing Editor

Five more banks were closed by banking regulators on June 26, bringing the total number of bank/credit union failures to 50 for 2009. Two banks in Georgia, one in Minnesota and two in California were shut down. Four were bought by other banks. The total assets of the five banks were just over $1 billion.

These five come on the heels of three banks closed on June 19.

The Federal Deposit Insurance Corporation (FDIC) paid out the insured deposits of Community Bank of West Georgia, Villa Rica, GA. The bank was closed by the Georgia Department of Banking and Finance. The failed bank had assets of $199.4 million and deposits of $182.5 million. The customers of the failed bank receiving direct deposits have been transferred to United Community Bank, Blairsville, GA. The estimated cost of the failure to the FDIC’s Deposit Insurance Fund will be $85 million. Community Bank of West Georgia is the eighth Georgia bank to fail this year.

The second Georgia bank to fail was Neighborhood Community Bank, Newnan, GA. The Georgia Department of Banking and Finance closed the bank and appointed the FDIC receiver. The FDIC in turn sold the failed bank’s deposits to CharterBank, West Point, GA. The four offices of Neighborhood Community Bank are now branches of CharterBank. The failed bank had $221.6 million in assets and deposits of $191.3 million. CharterBank agreed to purchase $209.6 million of assets. The bank and FDIC are in a loss-share agreement on $178.5 million of the failed bank’s assets. The FDIC DIF cost will be $66.7 million. Neighborhood Community Bank was the ninth bank in Georgia to fail in 2009.

More…

Jim Sinclair’s Commentary

This is a reasonable question asked by a rationale source.

Did leak from a laboratory cause swine flu pandemic?
By Steve Connor, Science Editor
June 30, 2009

Same strain of influenza was released by accident three decades ago

It has swept across the world killing at least 300 people and infecting thousands more. Yet the swine flu pandemic might not have happened had it not been for the accidental release of the same strain of influenza virus from a research laboratory in the late 1970s, according to a new study.

Scientists investigating the genetic make-up of flu viruses have concluded there is a high probability that the H1N1 strain of influenza "A" behind the current pandemic might never have been re-introduced into the human population were it not for an accidental leak from a laboratory working on the same strain in 1977.

Yesterday, the Department of Health announced a further surge in the number of cases in Britain with another 1,604 confirmed over the weekend, and the death of a nine-year-old girl in Birmingham with underlying medical complications; the third death in Britain from swine flu-related problems.

Almost 6,000 Britons have now been infected with the influenza "A" (H1N1) strain of swine flu. But two medical researchers believe that this strain of the virus had been extinct in the human population for more than 20 years until it was unwittingly reintroduced by scientists working in a research lab somewhere in the world, leading to a pandemic in 1977 that began in Russia and China.

"Careful study of the genetic origin of the [1977] virus showed that it was closely related to a 1950 strain, but dissimilar to influenza ‘A’ (H1N1) strains from both 1947 and 1957. This finding suggested that the 1977 outbreak strain had been preserved since 1950. The re-emergence was probably an accidental release from a laboratory source," according to the study published in The New England Journal of Medicine.

More…

Jim Sinclair’s Commentary

These things are not dollar positive.

U.S. housing misery poised to enter new phase
Fri Jun 26, 2009 1:25pm EDT
By Herbert Lash – Analysis

NEW YORK (Reuters) – Signs that home prices may have bottomed have stirred hope on Wall Street that the economy is on the mend, yet tight credit and a new foreclosure wave cast doubt on any looming housing revival.

Sales of previously owned U.S. homes rose for a second straight month in May, realty data on Tuesday showed, while the U.S. government and Federal Reserve have designed a number of programs to alleviate a battered housing market.

However, the chief economist of the National Association of Realtors warned of the danger of a "delayed" recovery in housing, with prices down 32 percent nationwide from their peak three years ago.

Big risk factors that could spur more foreclosures include expectations of rising unemployment and the forecast resetting of interest rates on 2.8 million subprime and Alt-A mortgages in the next two years.

Delinquency rates on mortgage payments typically rise in tandem with unemployment, which is expected to top 10 percent after hitting a 25-year high of 9.4 percent in May. And when mortgages interest rates reset, they are typically at higher rates that can cause monthly payments to balloon.

More…

Jim Sinclair’s Commentary

Dark pool exchanges may be enfranchising blindness. We shall see.

The New York Stock Exchange LLC (“NYSE”) will be decommissioning the requirement to report program trading activity via the Daily Program Trading Report (“DPTR”), which was previously approved by the Securities and Exchange Commission (the “Commission”).1 The last trade date for which member organizations will be required to file the DPTR with the Exchange will be July 10, 2009 and therefore the last required date to submit the DPTR will be July 14, 2009.

More…

Jim Sinclair’s Commentary

Read CDS risks as more OTC derivative liabilities.

UPDATE 1-AIG adds risk factor, may recognize more CDS losses
Mon Jun 29, 2009 6:32pm EDT

NEW YORK, June 29 (Reuters) – American International Group Inc (AIG.N) revised its 2008 annual report to add a new risk factor that shows it may recognize valuation losses on a credit default swap (CDS) portfolio held by its troubled financial products unit.

At issue is a super senior CDS portfolio held by AIG Financial Products with a notional value of $192.6 billion as of March 31, 2009.

The company said in a regulatory filing that it might have to incur further losses on the portfolio if credit markets continue to deteriorate.

The fair value of the derivative liability for CDS transactions was $393 million at March 31, 2009, the company said. (Reporting by Vikram S. Subhedar; Editing by Tim Dobbyn)

More…

Jim Sinclair’s Commentary

This is a reasonable question asked by a rationale source.

Did leak from a laboratory cause swine flu pandemic?
By Steve Connor, Science Editor
June 30, 2009

Same strain of influenza was released by accident three decades ago

It has swept across the world killing at least 300 people and infecting thousands more. Yet the swine flu pandemic might not have happened had it not been for the accidental release of the same strain of influenza virus from a research laboratory in the late 1970s, according to a new study.

Scientists investigating the genetic make-up of flu viruses have concluded there is a high probability that the H1N1 strain of influenza "A" behind the current pandemic might never have been re-introduced into the human population were it not for an accidental leak from a laboratory working on the same strain in 1977.

Yesterday, the Department of Health announced a further surge in the number of cases in Britain with another 1,604 confirmed over the weekend, and the death of a nine-year-old girl in Birmingham with underlying medical complications; the third death in Britain from swine flu-related problems.

Almost 6,000 Britons have now been infected with the influenza "A" (H1N1) strain of swine flu. But two medical researchers believe that this strain of the virus had been extinct in the human population for more than 20 years until it was unwittingly reintroduced by scientists working in a research lab somewhere in the world, leading to a pandemic in 1977 that began in Russia and China.

"Careful study of the genetic origin of the [1977] virus showed that it was closely related to a 1950 strain, but dissimilar to influenza ‘A’ (H1N1) strains from both 1947 and 1957. This finding suggested that the 1977 outbreak strain had been preserved since 1950. The re-emergence was probably an accidental release from a laboratory source," according to the study published in The New England Journal of Medicine.

More…

Jim Sinclair’s Commentary

From China’s view please note the time of your morning gold was sold off from plus $6. The dollar put on a sideways movement with a plus 15/100 spike. The paper traders are doing everything possible to prevent the inevitable. They will fail.

Jim Sinclair’s Commentary

Too big to fail and too small to care seems to be an international malady. The overt creation of paper currency will result in gold to going to Alf and Armstrong’s numbers, rendering my now 9 year projection of $1650 too conservative.

Japan Bails Out Struggling Chip Maker with $1.7 Billion Package
By HIROKO TABUCHI
July 1, 2009

TOKYO — In its first major industry bailout since the start of the global financial crisis, Japan said Tuesday that it had put together a package of $1.7 billion in public and private money to shore up a troubled chip maker, Elpida Memory.

By using public money to prop up Elpida, Japan hopes to salvage its only major maker of dynamic random access memory chips, or DRAM, considered vital to its electronics industry. The aid package also protects the nearly 6,000 workers at Elpida, which suffered record losses last year as the demand for semiconductors fell sharply.

But in using taxpayers’ money, the government also risks keeping feeble companies on life support, which ultimately could hurt Japan’s competitiveness, analysts said. Japan has set aside 2 trillion yen, or $21 billion, in public funds to aid companies hurt in the economic slowdown.

More…

Jim Sinclair’s Commentary

The party line delivered by the PR Lady was that this was only an accounting glitch. How many other depositories suffer from this incapacity to keep up with demand for delivery?

Please be careful.

Mint’s $15.3 M golden dilemma: Was there a heist?
By Philip Ling , Canwest News Service
June 29, 2009

Gold coins that will be melted down at the Royal Canadian Mint in Ottawa. The Mintsays it can’t account for approximately $15.3 million in precious metals that seems to have vanished from its inventory in the 2008 fiscal year, according to a third party review conducted by Deloitte and Touche.

OTTAWA — The distinct possibility that precious metals may have been stolen from the Royal Canadian Mint is "inexcusable," the federal minister responsible for the Crown corporation said Monday.

The findings of a long-awaited external audit, released earlier in the day, concluded that $15.3 million in missing gold is not the result of accounting or bookkeeping errors, raising even more questions about the whereabouts of the metals from what has been touted as one of the most secure facilities in Canada.

"The mint’s still unexplained loss of precious metals is inexcusable," Transport Minister John Baird and Minister of State for Transport Rob Merrifield, whose department is responsible for the mint, said in a joint release. "The mint will be held accountable."

The Royal Canadian Mint says the precious metals seem to have vanished from its inventory in the 2008 fiscal year, according to the third-party review conducted by Deloitte & Touche LLP.

More…

Jim Sinclair’s Commentary

Just when you think it is hard for things to get worse, a new problem surfaces.

UN official warns ‘missing link’ in global financial system growing more critical
Saturday, June 27, 2009
Edith M. Lederer

UNITED NATIONS: The UN trade chief said Thursday there is a "missing link" in the international financial system that is becoming more critical as the global economic crisis drags on: What happens when a country is bankrupt and can’t pay its debts? Supachai Panitchpakdi told a UN financial summit he is trying to help 90 poor countries with vulnerable economies, many with debts beyond 100 percent of the value of their overall economy, as measured by the gross domestic product.

Developing countries at the three-day conference, which ends Friday, have been pleading for more money to shore up ailing economies hard-hit by a crisis they didn’t cause.

Prime Minister Stephenson King of St. Lucia, one of 10 world leaders at the summit, urged the international community for a "significantly larger amount of grant funding" in the next two years, saying: "We simply cannot afford the stranglehold of additional debt." He said there is no international court to deal with the bankruptcy of a country so every nation would have to rely on its own national rules and regulations.

Panitchpakdi, secretary general of the UN conference on Trade and Development, cited Chapter 11 of the United States Bankruptcy Code, which permits all businesses to reorganize under US bankruptcy laws, as a possible model – a view echoed by Martin Khor, executive director of the South Center, a Geneva-based research organization with 50 developing countries as members.

"We are afraid that many developing countries will be plunged into a new debt crisis which would be very unfortunate," Khor said, noting that the World Bank recently said 40 countries are facing serious debt problems as a result of the global economic meltdown.

More…

Jim Sinclair’s Commentary

The pace of building here, although down from the Olympics, is still humming along. The mood of the people is the antithesis of the US.

China will drive commodities super-cycle: Scotiabank
John Morrissy, Financial Post  Published: Monday, June 29, 2009

OTTAWA – Canada’s key commodities have reversed their dramatic declines and are headed for years of renewed strength as the Chinese "dragon" rekindles an Asian-led super-cycle in basic materials, says Scotiabank commodities expert Patricia Mohr.

Driven by record levels of imports into China, Scotiabank’s commodity-price index climbed 2.2% in May from April, the month in which the 45% slide from July 2008 peaks came to an end, according to Ms. Mohr.

"China’s dragon has breathed life back into commodity prices," Ms. Mohr said.

Moreover, China’s economy is prospering despite weakness in the G7 countries that constitute the Western world’s industrial powers, she said.

"If you look at what has happened in terms of China’s industrial activity in the past three months (up 8.9% year-over-year in May alone) it obviously has at least partly decoupled from the G7."

Though the notion of decoupling, in which Asian economies prosper irrespective of Western growth, fell out of favour in last year’s sell-off, as did a commodities "super-cycle," extending over many years and caused by a structural change in the world’s economy, Ms. Mohr is convinced they will be the prevailing trends for years to come.

More…

Jim Sinclair’s Commentary

This is what preparation for a major dollar decline looks like.

China Plans to Start Yuan Settlement With Asean Soon (Update3)

June 30 (Bloomberg) — China may soon allow companies in its southern provinces of Yunnan and Guangxi to use yuan to settle cross-border trade with Southeast Asia to reduce foreign- exchange risks, a government official said.

The scheme will protect exporters from swings in currencies and help promote trade with the 10-nation Association of Southeast Asian Nations, Nong Rong, vice secretary general at the China-ASEAN Expo, said today. The trade fair, sponsored by China and Asean countries, has been held annually since 2004 in the city of Nanning, capital of Guangxi province.

“Preparation work for the pilot programs are progressing smoothly,” Nong, also deputy head of the Guangxi government bureau organizing such exhibitions, told reporters in Nanning. “Some companies that were deterred by foreign-exchange risk may now seek to expand overseas as the risks have been reduced.”

China, the world’s third-biggest economy, is seeking to make it easier for companies to do business in yuan and to expand trade with so-called Golden Triangle nations after the global recession choked sales to the U.S. and Europe. Chinese officials, including President Hu Jintao, have called for reducing its dependence on the dollar and the creation of a new global reserve currency.

The People’s Bank of China has agreed to provide 650 billion yuan ($95 billion) to Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea through so-called currency- swaps. Yesterday, the central bank signed an agreement with Hong Kong to allow the settlement of cross-border trade in yuan.

More…

Jim Sinclair’s Commentary

The probability of an Israeli attack on Iran grows as the US moves away from Israel. Take away the umbrella effect and self preservation can cause rash actions.

Israel Prepares F-15 Jets for Long Range Attack
by Gil Ronen

(IsraelNN.com) The Israel Air Force’s F-15 fleet is undergoing an upgrade, with systems that make it better equipped for complex long distance attack scenarios. The systems are being installed in both the F-15 and the F-15I — a model of the F-15 that was developed by its U.S. manufacturer specifically for the IAF.

According to IDF journal BaMachaneh, the F-15I model is currently being fitted with two new systems – one called “Barad Pelada” (“Steel Hail”), and another named Lightning.

The Barad Pelada advanced weapons system has been operational in the IAF’s F-16s for almost four years, but had to be modified in order to fit the F-15.

Barad Pelada is an advanced Israeli armament that operates like a smart bomb. “The system is unique in that it is able to plan the bombing in an accurate way by identifying the target from above,” a knowledgeable source in the IAF explained. “After the identification, the system carries out guidance to the target and only then is impact made.”

The Lightning advanced attack system has also been in use in the IAF’s other jets. Until now, the F-15I jets had to rely on the older Inbar system, which used to be fitted in all of the IAF’s jets but was gradually phased out.

More…

Jim Sinclair’s Commentary

Talk only? Shame on those pin heads that call themselves talking heads.

This is serious. This is real. This is the death of the US dollar.

128 days to go.

China Allows Trade Settlement in Yuan in Hong Kong (Update2)
By Nipa Piboontanasawat and Bob Chen

June 29 (Bloomberg) — China approved use of yuan to settle cross-border trade with Hong Kong, part of a drive to broaden the use of the currency and reduce reliance on the U.S. dollar.

Hong Kong Monetary Authority Chief Executive Joseph Yam said he hopes the first transactions will start next month after signing an agreement with People’s Bank of China Governor Zhou Xiaochuan at the city’s airport today. Zhou said the program would reduce foreign-exchange risks and transaction costs.

China is promoting greater use of the yuan in international trade and finance after Premier Wen Jiabao in March expressed concern that a weakening dollar will cause losses on holdings of U.S. assets. The greenback slumped on June 26 in New York after the People’s Bank of China renewed its call for a new global reserve currency to replace the greenback.

“It’s an important step to make the yuan an international currency,” said Fang Ming, an analyst in Beijing at Bank of China Ltd., the nation’s biggest foreign currency trader. “In the long-term, the world reserve currency system will consist of several major currencies, including the yuan and the euro, instead of just the U.S. dollar.”

The Dollar Index that measures the currency’s performance against six trading partners rose 0.4 percent today, after dropping 0.7 percent on June 26. Zhou told reporters in Basel yesterday that the nation won’t alter the composition of its $1.95 trillion in foreign-currency reserves suddenly. U.S. President Barack Obama needs the support of China as his government tries to spend its way out of a recession.

More…

Jim Sinclair’s Commentary

From China, allow me to assure you that the following is not talk. It is a call for action. 128 days left to go.

Beijing Formalizes Call for New Reserve Currency
JUNE 29, 2009

BEIJING — China’s central bank reiterated its call for the creation of a new international currency that could replace currencies such as the dollar in countries’ official reserves.

In its annual report on financial stability, issued Friday, the People’s Bank of China said the country will push reform of the international currency system to make it more diversified and reasonable. While it didn’t specifically target the U.S. currency, it said it aims to reduce over-reliance on the current reserve currencies, of which the dollar is the biggest.

"To avoid the shortcomings of sovereign credit currencies acting as reserve currencies, we need to create an… international reserve currency that can maintain the long-term stability of its value," the PBOC said.

The report, a lengthy document that addressed a broad range of issues, reiterated a proposal made by PBOC governor Zhou Xiaochuan in March to use Special Drawing Rights, the synthetic currency developed by the IMF, as a super-sovereign reserve currency. That proposal, made just before the G20 summit in London earlier this year, appeared in an essay authored by Mr. Zhou and posted on the PBOC’s Web site.

The call for a new global reserve currency was among a host of factors exerting pressure on the dollar Friday. The U.S. currency fell during New York trading against the U.K. pound, Australian dollar, yen, Swiss franc and euro.

More…

Posted June 29th, 2009 by Jim Sinclair & filed under In The News.

Jim Sinclair’s Commentary

Eradicate the poppy plantation and you eradicate the Afghan farmer, the economy and the Afghan political middle management.

They will not like the West ruining their primary cash crop without replacing it with something of equal value. How about Banga?

US says Afghan poppy eradication ‘failure’
Sun, 28 Jun 2009 23:38:38 GMT

The United States admits that its efforts in eradicating opium poppy production in Afghanistan have proven to be of no avail.

Washington’s special envoy to Pakistan and Afghanistan, Richard Holbrooke said on Sunday that the current measures taken against poppy growers had been "a failure".

"The Western policies against the opium crop, the poppy crop, have been a failure. They did not result in any damage to the Taliban, but they put farmers out of work," Holbrooke said at a G8 meeting in Italy.

More…

Jim Sinclair’s Commentary

129 dollars on the wall, 129 dollars on the wall, take away 129 and then watch the dollar fall?

No you do not have to wait 129 days as all economic processes start slow only to do their thing in a very short amount of time.

UPDATE 1-BIS-China, Brazil working on trade FX deal-cenbanks
Sun Jun 28, 2009 1:37pm EDT

BASEL, Switzerland, June 28 (Reuters) – China and Brazil are working on a currency arrangement to allow exporters and importers to settle deals in their local currencies, bypassing the U.S. dollar, the countries’ central banks said on Sunday.

China’s central bank governor Zhou Xiaochuan and Brazil’s Central Bank President Henrique Meirelles discussed the bilateral deal in a meeting at the Bank for International Settlements on Saturday.

"It is agreed in principle," a spokeswoman for the Brazilian central bank told Reuters. "They will start to study this."

No details were available on the size of the arrangement or the timeline for finalising details.

Zhou said a further step was for Brazilian President Luiz Inacio Lula da Silva and Chinese President Hu Jintao to discuss the arrangement, which he said would not necessarily involve a currency swap like those China has in place with other countries.

"What we are discussing is that Brazil’s president Mr Lula and our president Mr Hu talk about the possibility and gradual development to use our local currency for some trade settlement and … investment, that’s the major thing," he told reporters.

"It’s not necessarily to use a currency swap."

The People’s Bank of China has arranged six bilateral currency swaps, totalling 650 billion yuan ($95.12 billion), since December with countries including Malaysia, Argentina and Hong Kong.

More…

Jim Sinclair’s Commentary

Do you really want to pay $5 a gallon for low test gasoline? Well here is a way to.

Remember this – the wing nuts that structured this bill are now running your banks and financial concerns, auto companies and God only knows what else.

We have a government new car Czar and maybe soon a $4500 auto clunker Czar.

Obama Opposes Trade Sanctions in Climate Bill
By JOHN M. BRODER
Published: June 28, 2009

WASHINGTON — President Obama on Sunday praised the energy bill passed by the House late last week as an “extraordinary first step,” but he spoke out against a provision that would impose trade penalties on countries that do not accept limits on global warming pollution.

“At a time when the economy worldwide is still deep in recession and we’ve seen a significant drop in global trade,” Mr. Obama said, “I think we have to be very careful about sending any protectionist signals out there.”

He added, “I think there may be other ways of doing it than with a tariff approach.”

The passage of the House bill on Friday night was an important, if tentative, victory for the president, becoming the first time either chamber of Congress had approved a mandatory ceiling on the gases linked to global warming.

Mr. Obama, hoping to build momentum in the Senate after the narrow victory in the House, delayed the start of a Sunday golf game to speak to a small group of reporters in the Oval Office.

More…

Jim Sinclair’s Commentary

In case you missed it, this is worth a re-read. The rent-an-army Surge was pure Wag the Dog, Pakistan style.

Taliban to return to carry on its fight as Pak Army’s offensive lacks credibility: NYT
2009-06-28 13:20:00

The Pakistan Army has been boasting of success against the Taliban and other extremists, and claims that it has flushed the insurgents out, besides killing scores of them during its offensive in the Swat and Malakand Divisions, but a closer look at the region where the military operation purportedly resulted in death of several militants presents a different picture, casting serious questions over the Army’s claims.

While the military has been claiming being engaged in a stiff battle with the Taliban, no such signs are visible in the region, which clearly suggests that the insurgents have just melted into the local population here, only to remerge and fight another day, The New York Times reports.

Analysts also believe that amid the claims of the military of sanitizing scores of militants, it has failed to provide any proof of it, which raises serious doubts.

The military operation which has rendered over three million people homeless in the region, and has won strong support from the United States, has amazingly failed to destroy the Taliban’s leadership.

The military has also failed to kill or capture even one top Taliban commander, experts pointed out.

More…

Jim Sinclair’s Commentary

By 2012 Banksters will be an endanger species.

High-Flying Banker Boumeester Found Dead
12:41pm UK, Monday June 29, 2009

A Dutch financier who went missing after leaving his job at troubled banking group ABN Amro has been found dead with gunshot wounds.

Fears grew for the safety of high-flying banker Huibert Boumeester when he missed a business appointment. He had not been seen for a week.

Police said two of his shotguns had also disappeared from his homes in London and Scotland.

The body of the 49-year-old former chief financial officer at ABN Amro was found in woodland in Winkfield near Ascot, Berkshire, on Sunday morning.

A Thames Valley Police spokesman said they could not confirm the identity of the dead man, but added: "He is believed to have died from gunshot wounds.

"At the moment it is being treated as an unexplained death. A definite cause of death has not been established."

Mr Boumeester joined ABN Amro, the 2007 takeover of which plunged the Royal Bank of Scotland into record losses, in 1987

He worked his way up to the post of chief financial officer before leaving early last year.

More…

Posted June 26th, 2009 by Jim Sinclair & filed under In The News.

Three weeks to go:

1. California Labor Unions hold tight and will not cooperate with the needs of funding.
2. California legislators refuse to raise significant taxes.
3. The Obama Administration holds tight in saying they will not bail out California.

In three weeks California will be out of money with the inflow nowhere near the needs.

Then what? A bailout or no bailout?

New York State is not far behind California as well as other states.

Remember Jim’s Formula of 2006 that many laughed at and even more argued with.

Don’t forget to file for your TARP cut of the taxpayer’s pie. If a Rum manufacturer can get theirs, why shouldn’t you get yours? If Captain Morgan Rum  can pull it off then why not us?

Jim Sinclair’s Commentary

The most popular question I receive on a daily basis is to comment on the gold to silver ratio.

Here is my answer and promise to you:

As pressure to deliver gold hits the COMEX exchange in the last quarter of 2009 with titanic force, the ratio trades will totally explode, killing the gold to silver spread traders.

With gold to silver ratios you are not buying insurance, you are a gambleholic buying decimation.

Jim Sinclair’s Commentary

From the article:

“Jim Sinclair of jsmineset.com, a legendary gold trader, reported that some of his contacts have told him that, when they request to withdraw their 100oz. bars from the Comex depositories, they have not received the proper indicted bars. They received a bar, but not one with the correct serial number or weight.

Why not? One possibility is that an honest mistake was made. The high demand recently has apparently kept the depository workers very busy. Wall Street veterans recall that delivery errors were chronic in the days of paper share certificates.

Another possibility is that the bar indicated on the warehouse receipt does not actually exist. The implications of that are rather dire.”

Where’s The Gold?

The Comex is the name for the largest gold futures market in the world, traditionally centered in New York City. Although the market recently became part of the Chicago Mercantile Exchange, it has retained its old nickname. Also, the depositories which hold the actual bars of gold used to settle the futures contracts remain in New York City.

A gold depository must be the most boring business on earth. They charge a small monthly fee to store 100oz. standardized bars of gold in an insured vault. It is an industrial-sized version of a safe deposit box.

The owner of a 100oz. bar owns a specific chunk of gold. It has a manufacturer, a serial number, and an exact weight measured to the 1/100th of an ounce. A written depository receipt — similar to an old-fashioned paper share certificate — shows the exact date the bar entered the depository, and the entire chain of ownership since that date; they often change hands without leaving the depository. You can request to withdraw the bar from the depository, and you should receive exactly the bar indicated.

Interest in precious metals as an investment has been heating up, and some fund managers have begun to take very large positions. Demand for Comex gold bars has been increasing — especially as they are significantly cheaper per ounce than alternatives like 1oz. bullion coins or the kilogram bars popular in Europe.

Jim Sinclair of jsmineset.com, a legendary gold trader, reported that some of his contacts have told him that, when they request to withdraw their 100oz. bars from the Comex depositories, they have not received the proper indicted bars. They received a bar, but not one with the correct serial number or weight.

Why not? One possibility is that an honest mistake was made. The high demand recently has apparently kept the depository workers very busy. Wall Street veterans recall that delivery errors were chronic in the days of paper share certificates.

More…

CIGA Eric’s Commentary

Spin vs. Reality: Management of Perception Economics

May incomes surge, but savings outpace spending
Households push savings rate to 15-year high as May incomes rise by largest amount in year
By Martin Crutsinger, AP Economics Writer
On Friday June 26, 2009, 1:48 pm EDT

WASHINGTON (AP) — Households pushed their savings rate to the highest level in more than 15 years in May as a big boost in incomes from the government’s stimulus program was devoted more to bolstering nest eggs than increased spending.

The higher savings rate is healthy in the long term, economists said. But without vigorous consumer spending, the government may have to do more to revive the economy, possibly through further tax breaks and spending.

The Commerce Department said Friday that consumer spending rose 0.3 percent in May, in line with expectations. But incomes jumped 1.4 percent, the biggest gain in a year and easily outpacing the 0.3 percent increase that economists expected.

The savings rate, which was hovering near zero in early 2008, surged to 6.9 percent, the highest level since December 1993.

More…

Economists React: ‘Short-Lived’ Boost to Income, Spending
By Phil Izzo

Economists and others weigh in on the jump in personal income and spending.

Wage and salary income, which is key for consumer spending, fell… While lower taxes and one time checks from the government are obviously a net positive for the consumer, they tend to have a short-lived effect on spending growth as they only affect the rate of change in disposable income when they are implemented or shortly thereafter. Of more importance to ongoing spending growth is the rate of growth in wages and salaries and other continuing sources of income flow. –Joshua Shapiro, MFR Inc.

The lion’s share (94.3%) of the increase in income came from one-time increases of $250 per eligible recipient of social security, supplemental security, veterans benefits, and railroad retirement benefits. The $13.1 billion of these transfers boosted May income by about $158 billion (annualized). These transfers are not recurring so incomes will fall by a like amount in June. Spending from this actual $13.1 billion is likely to be spread out over several months or even years if recipients use the proceeds to increase saving or reduce debt. The key fundamental driver of spending — wage and salary income — fell 0.1% after a slightly smaller advance in April. –Nomura Global Economics

More…

Jim Sinclair’s Commentary

For those that profess all is well and getting better, have a look at this.

Now here is a lot of improvement! (Click chart to enlarge)

Jim Sinclair’s Commentary

MOPE (management of perspective economics) can fool any fool, but the result here is a lower dollar without recovery. Once confidence is broken by markets, it cannot be put back together with more of what broke it.

Fading of the Dollar’s Dominance

The days of calling the dollar almighty may be numbered.

Since World War II, when the dollar eclipsed the British pound as the king of world currencies, the United States has reaped the rewards of its monetary strength. The greenback’s sense of indestructibility allowed the U.S. government to borrow cheaply and gave rise to an era of rich American globetrotters toting the world’s most easily convertible form of cash.

But the financial crisis that started in the United States is dramatically intensifying the debate over the future of the dollar, and whether it can, or should, remain at the top of the financial food chain. Although a meaningful shift away from the dollar is likely to take years or more, some analysts believe that the debate is now reaching a tipping point.

Last week, the leaders of Brazil, Russia, India and China — whose governments are some of the world’s largest dollar holders — jointly declared the need for a “more diversified international monetary system,” sparking a drop in the greenback on world markets. In recent months, China in particular has led a campaign for a new world monetary order, arguing that the financial crisis has exposed profound vulnerabilities in the U.S. economy and financial system. Those flaws, critics argue, show it is simply too risky for the world’s central banks to rely largely on the dollar for their global reserves.

At the same time, Beijing has taken unprecedented steps to increase the international role of its own currency, the yuan, to a level commensurate with China’s relatively new status as a major economic power. In the coming weeks, the International Monetary Fund — the institution charged with the monitoring and stability of the global economy — will issue a vast amount of currency-like assets known as Special Drawing Rights, which some analysts see as a long-term substitute for the hordes of dollar reserves being held by central banks around the world. Some now envision that the dollar will fall from its recent levels of 60 to 65 percent of international reserves to less than 50 percent a decade from now.

A diminishing of the dollar’s global role has far-reaching implications for the United States. The value of the dollar versus other major currencies could markedly drop as it slips from supremacy, making millions of Americans overseas feel poorer while potentially fueling a new golden era for U.S. exporters as American goods become more cost-competitive. The U.S. government may also be forced to pay higher rates to investors when selling, for instance, Treasury bonds to raise cash — making it far more costly in the future to cover the kind of massive stimulus spending the government is now undertaking.

More…

Jim Sinclair’s Commentary

It was only a matter of time.

Terrorists recruit for cyberwar, official says
Islamic extremists increasingly using the Internet as outreach tool
updated 5:58 p.m. ET, Thurs., June 18, 2009

WASHINGTON – Terrorist groups that have long used the Internet to spread propaganda are increasingly tapping the Web to teach Islamic extremists how to be hackers, recruit techies for cyberwarfare and raise money through online fraud, U.S. officials say.

A senior defense official said intelligence reports indicate extremist groups are seeking computer experts, including those capable of breaching government or other sensitive network systems.

The official, who spoke on condition of anonymity to discuss sensitive information, said the extent and success of those recruiting efforts are unclear.

More…

Jim Sinclair’s Commentary

Here is the new GM Volt car, not exactly emission free and somewhat methane powered, but definitely greenish.

By comparison to the GM Volt shown above, below is transportation in Greenwich, CT today. The two people pictured are OTC credit default derivative dealers on their way to work, financed by TARP. Palm trees were imported, and paid for by Madoff clients.

Jim Sinclair’s Commentary

Hey, in today’s financial condition what difference would a few trillion (true number) make?

Jim Sinclair’s Commentary

COT: Fight it they will. Fail they will.

The following is quite gold positive. Reducing dependence on the dollar is quite dollar negative. The MOPE is the Chinese can’t do anything because they have so many treasuries, but that is SPIN at its best.

Financial TV actually MOPEs about it saying it is all talk and no substance.

U.S. Stocks, Dollar Decline on China Calls for World Currency
By Elizabeth Stanton

June 26 (Bloomberg) — U.S. stocks and the dollar dropped after China’s central bank reiterated a call for a “super sovereign currency,” while energy shares retreated with oil and agricultural shares slumped.

Exxon Mobil Corp. and Tesoro Corp. fell as crude oil futures lost 1.3 percent to $69.34 a barrel. Monsanto Co., the biggest seed maker, dropped after Potash Corp. of Saskatchewan cut its second-quarter profit forecast. The dollar slumped 0.7 percent against six trading partners as China sought to replace it as the global reserve currency. Micron Technology Inc. fell after posting a wider-than-estimated loss because of an industry glut that drove memory-chip prices below the cost of production.

The Standard & Poor’s 500 Index decreased 0.5 percent to 915.44 at 10:10 a.m. Futures on the index expiring in September had risen as much as 0.4 percent after the Commerce Department said at 8:30 a.m. that Americans’ incomes increased the most in a year last month. The Dow Jones Industrial Average fell 50.26 points, or 0.6 percent, to 8,422.14.

“There will be diversification among global central banks,” said Beat Siegenthaler, chief emerging markets strategist at TD Securities Ltd. in London. The comments from China “tend to remind traders of that, but there’s still a question about the time horizon.”

China, the biggest foreign owner of U.S. Treasuries, cut its holdings of government notes and bonds by $4.4 billion to $763.5 billion in April, according to data released on June 15 in Washington. People’s Bank of China Governor Zhou Xiaochuan in March urged the IMF to expand the functions of its unit of account and move toward an international reserve currency to reduce dependence on the dollar.

More…

Jim Sinclair’s Commentary

So are US banks after the false FASB first quarter.

British banks highly vulnerable to future shocks, Bank of England warns
Britain’s banks remain over-indebted, highly vulnerable and harbour growing funding gaps which leave them susceptible to future shocks, the Bank of England has said.
By Edmund Conway
Published: 5:56AM BST 26 Jun 2009

In a warning to bankers and consumers after months that have seen large jumps in share prices and hopes that the banking system is recovering, the Bank used its Financial Stability Report to emphasise that the UK remains highly vulnerable to potential shocks.

With the Government poised to deliver its White Paper on financial regulation next week, the Bank also cautioned that life for financial institutions was about to change forever, with big banks facing a whole spectrum of new restraints on their size, structure, business plans and lending.

The report, published today, said: “While pressures on the major global banks have stabilised over the past few months, their balance sheets remain impaired. Banks’ leverage remains high, with the possibility of further impairment of assets placing continued pressure on profitability and capital ratios. Future revenue generation will need to balance the desire to deleverage with the need to generate new business at profitable spreads.

“At the same time, the major UK banks maintain a high and rising customer funding gap. The withdrawal of overseas funding and competition for domestic deposits has added to these funding pressures.”

The report revealed that the funding gap – the shortfall between what banks have in deposits and what they lend out to customers – has further widened in the past year to more than £800bn. The increase underlines the scale of adjustment that they will have to undergo before life returns to relative normality. The report also pointed out that the amount banks have in liquid assets remains low, while the leverage ratios remain high, saying: “As long as these balance sheet vulnerabilities persist, there is a risk to the banking system from further adverse economic or financial sector developments, which could in turn affect lending and economic recovery.”

More…

Jim Sinclair’s Commentary

Naughty CITI.

Citigroup Ordered to Suspend Some Operations in Japan (Update2)
By Shingo Kawamoto and Takahiko Hyuga

June 26 (Bloomberg) — Citigroup Inc. was ordered by Japan’s financial regulator to suspend marketing of banking services to individuals for a month, after failing to put in place adequate internal controls to prevent money laundering.

The Financial Services Agency told Citibank Japan Ltd. to halt retail banking sales from July 15 to Aug. 14, except in cases where the company is approached by customers, the regulator said in a statement in Tokyo today. It also ordered the bank to improve governance and control systems.

The regulator found Citigroup had “fundamental problems” with its compliance, including systems to detect and monitor suspicious transactions. The New York-based bank failed to implement an improvement plan it submitted after it was forced to close its private banking business in Japan in 2004 for a similar failure, the watchdog said.

Citibank Japan didn’t update a database used to screen suspicious transactions since 2004, and management officials “lack an understanding of the rules applied in Japan, such as laws and regulations, and an awareness of improvement,” the regulator said in its statement.

Citigroup will comply with the regulator’s order and will submit an improvement plan by July 31, the company said in a statement. The order won’t have any impact on business with institutional clients, the bank said.

“We apologize deeply and take the situation seriously,” the company said in the statement.

More…

Jim Sinclair’s Commentary

MOPE (management of perceptions economics) strikes again!

BofA got 2nd top U.S. regulatory grade-documents
Reuters, Thursday June 25 2009
By Jonathan Stempel

NEW YORK, June 25 (Reuters) – Bank of America Corp, which got a $45 billion government bailout and was ordered to raise $33.9 billion more capital, was awarded the second-highest rating by U.S. banking regulators for overall financial health, documents released on Thursday show.

Regulators assign confidential ratings that assess banks’ capital adequacy, asset quality, management quality, earnings, liquidity and sensitivity to market risk. They are known as “Camels” ratings based on the first letters of the six factors, and go on a scale of 1 to 5, where 1 is highest.

Bank of America and its Bank of America NA banking unit were awarded “2” composite ratings, according to documents released by the House of Representatives Committee on Oversight and Government Reform.

One of the documents showing the ratings is dated May 29, three weeks after regulators ordered the Charlotte, North Carolina-based bank to raise $33.9 billion following a “stress test” of its ability to weather a deep recession. Bank of America said on Thursday it has more than built that buffer.

“They have a lower Camels rating than we would like to see given their size,” said Tony Plath, a finance professor at the University of North Carolina at Charlotte. “It suggests that regulators are taking a dim view of the bank’s risk controls and management capability. That’s pretty scary.”

More…

Jim Sinclair’s Commentary

Generally this type of news is blacked out to prevent disturbing the social order.

I am surprised by the LA times.

H1N1 ‘swine’ flu has infected an estimated 1 million in U.S.
The virus is also spreading rapidly through the Southern Hemisphere. A French company announces large-scale production of a vaccine.
By Thomas H. Maugh II
3:54 PM PDT, June 25, 2009

At least 1 million Americans have now contracted the novel H1N1 influenza, according to mathematical models prepared by the Centers for Disease Control and Prevention, while data from the field indicates that the virus is continuing to spread even though the normal flu season is over and that an increasing proportion of victims are being hospitalized.

Meanwhile, the virus is continuing its rapid spread through the Southern Hemisphere, infecting increasing numbers of people and at least one pig.

Nearly 28,000 laboratory-confirmed U.S. cases of the virus, also known as swine flu, have been reported to the CDC, almost half of the more than 56,000 cases globally reported to the World Health Organization.

But Lyn Finelli, a flu surveillance official with CDC, told a vaccine advisory committee meeting in Atlanta today that standard models of viral spread indicate that many times that number have been infected. Although 1 million seems like a high number, between 15 million and 60 million Americans are infected by the influenza virus during a normal flu season.

At least 3,065 of those infected in this country have been hospitalized and 127 have died. The very young are most likely to be infected, Finelli said, but older patients seem to suffer more. The average age of swine flu victims is 12, the average age of hospitalized patients is 20 and the average age of those who have died is 37, she said.

More…

Posted June 25th, 2009 by Jim Sinclair & filed under In The News.

Dear CIGAs,

You are going to see a great deal more of this.

Do you honestly know how bad things are going to get?

Do you really accept that the US dollar is going to take a historical percentage of value hammering in the final quarter of 2009?

Do you recognize that as pressure to deliver gold hits the COMEX exchange with titanic force, the ratio traders will totally explode and kill the spread traders?

Do you have any idea how long it is going to be before real green shoots become crops?

Do you know that certain medicines are already in short supply for economic reasons?

There is only a small minority out there that really understands. There is no need for bank holidays as long as QE and TARP type programs are grown to meet the growing demand.

I have long told you that our financial leaders will burn the barn down before letting nature take its course. The barn is the US dollar.

Look out the window and stop listening to MOPE.

Please give food, not money.

In the 1930s insurance companies did this to pay claims. These California IOU claims will probably trade at 25% of face value. They will trade in today’s world of paper shufflers.

California set to issue IOUs as fiscal crisis weighs
By Dan Whitcomb and Ciara Linnane Dan Whitcomb And Ciara Linnane
Wed Jun 24, 10:00 pm ET

LOS ANGELES/NEW YORK (Reuters) – California’s controller said on Wednesday that he would have to issue IOUs in a week if lawmakers can’t quickly solve a $24 billion budget deficit, and the state’s treasurer plans to tap a reserve fund to meet debt service costs.

The measures came as a budget crisis deepened in the most populous U.S. state and the gridlocked legislature failed to pass a proposed $11 billion in cuts.

"Next Wednesday we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression," Controller John Chiang said in a statement announcing that he would be forced to use IOUs to pay the state’s bills beginning on July 2.

"The state’s $2.8 billion cash shortage in July grows to $6.5 billion in September and after that we see a double digit freefall," Chiang said. "Unfortunately, the state’s inability to balance its checkbook will now mean short-changing taxpayers, local governments and small businesses."

State Treasurer Bill Lockyer, meanwhile, is planning to draw on reserves for economic recovery sales tax bonds, according to a spokesman.

More…

Jim Sinclair’s Commentary

In Addis Ababa, Ethiopia, mothers are telling their kids to eat all their food because children are starving in America.

US cities may have to be bulldozed in order to survive
Dozens of US cities may have entire neighbourhoods bulldozed as part of drastic "shrink to survive" proposals being considered by the Obama administration to tackle economic decline.
By Tom Leonard in Flint, Michigan
Published: 6:30PM BST 12 Jun 2009

The government looking at expanding a pioneering scheme in Flint, one of the poorest US cities, which involves razing entire districts and returning the land to nature.

Local politicians believe the city must contract by as much as 40 per cent, concentrating the dwindling population and local services into a more viable area.

The radical experiment is the brainchild of Dan Kildee, treasurer of Genesee County, which includes Flint.

Having outlined his strategy to Barack Obama during the election campaign, Mr Kildee has now been approached by the US government and a group of charities who want him to apply what he has learnt to the rest of the country.

Mr Kildee said he will concentrate on 50 cities, identified in a recent study by the Brookings Institution, an influential Washington think-tank, as potentially needing to shrink substantially to cope with their declining fortunes.

More…

The Saga of Make Believe Bank Profits

There was lots of talk today about Bank of America’s second quarter loss.

The reality is that the first quarter profits by the financial group was all a gift from FASB which allowed the financial group to value their worthless derivative paper at whatever their computer models said.

The profits were attributed to their trading department as that camouflaged mark-ups on previously marked down OTC derivatives now taken in as profit.

This magical accounting exercise profits will now depend on business activity and recognition of loan losses plus credit card lay downs.

This quarter, the third quarter, substance will begin to overcome form (accounting fabrications blessed by FASB). This will make it much harder to keep the party going via management of perception economics.

MOPE, Management of Perception Economics, is outlined in the book, "Die Zeit Ohne Beispiel."

Bank of America Heads for Quarterly Loss, Citi Says (Update1)
By David Mildenberg

June 25 (Bloomberg) — Bank of America Corp. will post a second-quarter loss as it builds reserves to cushion defaults on credit cards and consumer loans, Citigroup Inc. analyst Keith Horowitz said.

Mounting losses on consumer credit will erase a $5 billion gain from the sale of China Construction Bank Corp. shares, bringing the quarter’s loss to 11 cents a share, Horowitz said in the report dated yesterday. The bank is also facing an $875 million charge from the Federal Deposit Insurance Corp. to help bolster the agency’s fund and $2 billion of writedowns tied to the Merrill Lynch & Co. unit.

Citigroup’s estimate contradicts the consensus among the 22 analysts surveyed by Bloomberg, which predicts a profit of 8 cents a share for Bank of America. While Horowitz cut his price target on the stock by $2 to $18 a share, he affirmed his “buy” rating, saying that the need to build reserves may be peaking at the Charlotte, North Carolina-based lender.

Bank of America “will emerge from this cycle faster than peers,” Horowitz wrote. “We remain confident that even with expected credit deterioration” in the quarter, “there is more than adequate capital cushion to absorb embedded credit losses.”

The bank fell 11 cents to $12.24 at 11:48 a.m. in New York Stock Exchange composite trading. The shares have dropped 13 percent this year.

More…

Jim Sinclair’s Commentary

If the Fed increases QE all this will go away. If they do not, by legislative action, the Fed will fade away. Watch!

Lawmaker accuses Fed of "cover-up" in BofA deal
Wed Jun 24, 2009 7:03pm EDT
By Kim Dixon

WASHINGTON (Reuters) – The Federal Reserve sought to hide its involvement in Bank of America Corp’s (BAC.N) acquisition of Merrill Lynch as Merrill’s financial condition worsened, the top Republican on the House Oversight and Government Reform Committee said on Wednesday.

The Fed "engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies," Representative Darrell Issa said in a statement released to Reuters.

Bernanke has in the past denied any inappropriate pressure on Bank of America. Fed spokeswoman Michelle Smith on Wednesday referred to a letter Bernanke sent Representative Dennis Kucinich on April 30 and later testimony in which he offered an "unconditional assertion" that he did not ask Bank of America CEO Ken Lewis to withhold information regarding Merrill.

"The Federal Reserve acted with the highest integrity throughout its discussions with Bank of America," Bernanke wrote to the Ohio Democrat, who chairs a subcommittee on the Oversight panel.

The Democrat who heads the committee, Edolphus Towns of New York, has called Bernanke to testify on Thursday. "I am not going to prejudge these issues. We are not even close to finishing the Bank of America-Merrill Lynch investigation at this point," Towns said in a statement.

More…

Jim Sinclair’s Commentary

This information is worth paying for:

– GDP Revisions Little More Than Statistical Noise but Watch Out for July 31st Benchmark Revisions
– Annual Plunge in Durable Goods Orders Continued
– Worst of the Downturn Still is Ahead
By subscription: http://www.shadowstats.com/