Posts Categorized: In The News

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Jim Sinclair’s Commentary

This weekend I assured you that “Pay to Play” was key to the majority of pension fund money now decimated by the players.

The failure of pension funds and the misdeeds to get the money under management is going to drive pensioners and all those that planned some day to retire right out of their minds.

In State Pension Inquiry, a Scandal Snowballs
By DANNY HAKIM and MARY WILLIAMS WALSH
Published: April 17, 2009

The inquiry into corruption at the New York State pension fund started simply enough. Alan G. Hevesi, the former comptroller, was accused of using state workers as chauffeurs for his ailing wife.

But by the time Mr. Hevesi resigned his office in late 2006, investigators for the Albany County district attorney’s office were examining a more troubling problem: allegations that Mr. Hevesi’s associates had sold access to the state’s $122 billion pension fund, using one of the world’s largest pools of assets to reward friends, pay back political favors and reap millions of dollars in cash rewards for themselves.

“We knew this was not going to be a case we could handle ourselves in Albany County,” recalled P. David Soares, the Albany County district attorney.

In 2007, Attorney General Andrew M. Cuomo’s office and then the Securities and Exchange Commission took over the inquiry, which has ballooned into a sprawling investigation involving some of the most prominent players in New York’s political and financial worlds.

Hundreds of investment firms have been subpoenaed. Three people have been criminally charged and another has pleaded guilty to a felony. And the scandal has grabbed the attention of Wall Street, as members of the investment establishment’s top tier now face scrutiny.

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Jim Sinclair’s Commentary

Maybe you can fool some of the people some of the time and that time has worn itself out. To call mark to market a gimmick was a top in foolishness.

Criticism of U.S. accounting changes mounts
IASB said the rationale for watering down fair value is “crazy”
Duncan Mavin
Published: Monday, April 20, 2009

Wall Street lobbyists and U.S. politicians are damaging the credibility of corporate reporting and hurting the interests of investors around the world by pulling-back on fair value accounting, a top international accountant said.

The comments from Tom Jones, vice-chair of the International Accounting Standards Board, come after U.S. standard-setters unilaterally decided to dilute the controversial accounting rule earlier this month.

In an interview with the Financial Post, Mr. Jones warned of “a loss of credibility” and said the rationale for watering down fair value is “crazy.” He also cited concerns about political interference that could undermine the independence of accounting rule setters, a fear that was echoed by other senior accountants Monday.

In early April, the U.S. Financial Accounting Standards Board pledged to backtrack on fair value accounting under intense pressure from Wall Street and demands from Congress. U.S. lawmakers had even threatened to take the matter into their own hands rather than leave it to the accountants. The resulting FASB rule changes released on Friday allow banks to use judgment rather than market prices, to value financial instruments.

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Posted by & filed under In The News.

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Dear CIGAs,

1. The real number is in excess of US $1.4 quadrillion notional value. The method of valuation was changed to hold to maturity, a cartoon.

2. Notional value becomes full value upon bankruptcy.

3. It is already melting down.

4. The chances of this happening soon are reasonably good as the real why of this ongoing disaster is coming into focus.

Derivatives: A $700+ Trillion Bubble Waiting to Burst
April 19, 2009
J. S. Kim

In the past three years, while banks all over the world and Wall Street were imploding, while some $40-$50 trillion of capital was being destroyed in global stock markets, one financial market kept growing. That market is the financial derivatives market.

According to the Bank for International Settlements [BIS], the global Over the Counter [OTC] derivatives market has grown almost 65% from $414.8 trillion in December, 2006 to $683.7 trillion in June of 2008. On the BIS’s own website, there are no updated figures for the notional derivatives market since June 2008, so we can likely assume, with some margin of safety, that this market has now grown to more than $700 trillion. Comparatively speaking, the total market cap of all major global stock markets is approximately $30 trillion.

Before I discuss how financial products could grow more than 65% during a time period when financial companies were imploding all over the world, let’s review the definition of a derivative, because this will explain how this market of financial products keeps becoming more valuable at a time when the value of many capital assets are sinking like a rock in an ocean.

According to Wikipedia:

Derivatives are financial contracts, or financial instruments, whose values are derived from the value of something else (known as the underlying). The underlying value on which a derivative is based can be an asset (e.g., commodities, equities (stocks), residential mortgages, commercial real estate, loans, bonds), an index (e.g., interest rates, exchange rates, stock market indices, consumer price index [CPI] — see inflation derivatives), weather conditions, or other items. Credit derivatives are based on loans, bonds or other forms of credit. The main types of derivatives are forwards, futures, options, and swaps.

Because the value of a derivative is contingent on the value of the underlying, the notional value of derivatives is recorded off the balance sheet of an institution, although the market value of derivatives is recorded on the balance sheet. Over-the-counter [OTC] derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. The OTC derivative market is the largest market for derivatives, and is largely unregulated with respect to disclosure of information between the parties, since the OTC market is made up of banks and other highly sophisticated parties, such as hedge funds…Because OTC derivatives are not traded on an exchange, there is no central counterparty. Therefore, they are subject to counterparty risk, like an ordinary contract, since each counterparty relies on the other to perform.

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Jim Sinclair’s Commentary

This period in history will be titled “The Death of the Dollar.”

With that the power of Asia rises.

China seeks oversight of reserve currency issuers
China sovereign wealth fund plans more investments in Europe: report
By Lisa Twaronite, MarketWatch
Last update: 5:28 p.m. EDT April 18, 2009

SAN FRANCISCO (MarketWatch) — Chinese Premier Wen Jiabao called for more surveillance of countries that issue major reserve currencies, according to published reports Saturday.

Wen did not specify the United States in his remarks at the Boao Forum for Asia in China’s Hainan Province. But Chinese officials have recently expressed their concern about their country’s investments in dollar-denominated assets.

“We should advance reform of the international financial system, increase the representation and voice of emerging markets and developing countries, strengthen surveillance of the macro-economic policies of major reserve currency issuing economies, and develop a more diversified international monetary system,” Wen said, according to China’s official Xinhua news agency.

Wen told the conference that China’s economy was faring “better than expected.” China said last week that its economy grew at an annual rate of 6.1% in the first quarter, a slowdown from 6.8% in the fourth quarter of 2008.

Wen said China would seek to expand currency swap agreements that are seen as a step toward eventually making the yuan more of a global reserve asset.

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Jim Sinclair’s Commentary

Bloomberg’s revealing of the tenuous position of the $USD is attention catching.

The Money Bunnies would faint stone cold if that came from Bloomberg TV.

There is no way dollar support will survive 2009. It simply will NOT!

China wants control over the economic monetary acts of a reserve currency nation (posted for you today). This is a direct dollar challenge if you have the experience to hear.

Washington in general could be dense and egotistic enough not to know what is coming down the pike.

“Geithner’s climb-down from the manipulator charge is about pragmatism. He is aware of the fragility of international support for the dollar.”

Geithner’s Biggest Problem Is Dollar, Not China: William Pesek
Commentary by William Pesek

April 17 (Bloomberg) — It’s a bit rich for U.S. politicians to berate Treasury Secretary Timothy Geithner for not labeling China as a currency manipulator.

Perhaps Senator Lindsey Graham, a South Carolina Republican, hasn’t seen a newspaper in the last 12 months. With near-zero interest rates, the likely issuance of trillions of dollars of government debt and massive taxpayer-funded bailouts, the U.S. will soon make China look like a manipulation piker.

Memo to Graham and his ilk: Your economy has lost any moral high ground as it drags the world down with it. That will be even truer as the dollar eventually pays the price for ultra- loose monetary and fiscal policies. And it will.

Sure, China manipulates the yuan. Everyone knows that, including Geithner; he said so during his January confirmation hearing. It’s also widely recognized that a stable yuan is propping up the U.S. financial system. Its $2 trillion of reserves are a direct result of China manipulating the yuan.

Geithner’s climb-down from the manipulator charge is about pragmatism. He is aware of the fragility of international support for the dollar.

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Jim Sinclair’s Commentary

Of all our international problems this is the most serious.

It holds the potential of upsetting the social order as every worker depends on their retirement funds, many of whom have been taken down by the OTC derivative massacre.

Having read the warning letters required to be sent to the pension fund contributors, I can assure you they do not bare the facts.

Potential pensioners are clueless.

Are pensions just a waste of money? In a word: yes
The Observer, Sunday 19 April 2009

Having paid into a private pension for the last 10 years, my answer to your question (Are pensions a waste of money?, Cash, last week) is yes.

The value of my fund is about 30% less than the amount I’ve paid in over the years. I’m also paying into an occupational pension, though only because my employer adds 6%, but, like the private pension, this has plummeted in value.

Forget about the tax-free capital gains claimed by Tom McPhail – the stockmarket has gone nowhere for 10 years. Only the prospect of dividends has given any hope to pension savers. But Gordon Brown has been taxing these since 1997.

Only fund managers make money out of pensions. They take annual fees regardless of performance. This also means you have to keep paying into a pension just to stand still – stop and its value falls each year thanks to charges.

Phil Gooch, by email

Are pensions a waste of money? In my opinion, they are. The big advantage for a man, let’s call him Mr B, investing in an Isa instead is that it is then his money to do with as he pleases. If Mr B dies at 80 there could be money remaining that could be left to his partner or children.

It is possible to take a quarter of a pension pot as a lump sum , but the rest has to be given away to strangers in a pension company. If you pay tax at 40%, do not wish to leave an inheritance, and plan to retire early, then maybe a pension is for you. But not for me.

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Jim Sinclair’s Commentary

If you think this is unusual then you never heard the term, “Pay to Play,” common in the financial industry.

As pension funds financially implode watch the fall out of “Pay to Play.”

In State Pension Inquiry, a Scandal Snowballs
By DANNY HAKIM and MARY WILLIAMS WALSH
Published: April 17, 2009

The inquiry into corruption at the New York State pension fund started simply enough. Alan G. Hevesi, the former comptroller, was accused of using state workers as chauffeurs for his ailing wife.

But by the time Mr. Hevesi resigned his office in late 2006, investigators for the Albany County district attorney’s office were examining a more troubling problem: allegations that Mr. Hevesi’s associates had sold access to the state’s $122 billion pension fund, using one of the world’s largest pools of assets to reward friends, pay back political favors and reap millions of dollars in cash rewards for themselves.

“We knew this was not going to be a case we could handle ourselves in Albany County,” recalled P. David Soares, the Albany County district attorney.

In 2007, Attorney General Andrew M. Cuomo’s office and then the Securities and Exchange Commission took over the inquiry, which has ballooned into a sprawling investigation involving some of the most prominent players in New York’s political and financial worlds.

Hundreds of investment firms have been subpoenaed. Three people have been criminally charged and another has pleaded guilty to a felony. And the scandal has grabbed the attention of Wall Street, as members of the investment establishment’s top tier now face scrutiny.

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Jim Sinclair’s Commentary

We spoke of Jim’s Formula as a key to the dollar.

Here is your confirmation that the 2006 Formula did give you an outline of what lays ahead, how it would occur and how it would eventually take the dollar down.

The Formula will play out as the most significant of all criterion for this chapter that history will define as “The Death of the Dollar.”

Just think if someone had listened to my warnings from 2000 to the present on OTC derivatives.

Just think if people had given the Formula the credit it deserves.

Even now evil spirited people would rather deride than be advised.

They could still have gotten pig rich without destroying the world in the process.

The destruction has been done. Now even Taleb cannot help them.

You can protect yourself. You must protect yourself from perpetual spin.

Study the lessons below, please.

GEAB N°34 is available! Summer 2009: The international monetary system’s breakdown is underway

In this issue of the GEAB, our researchers anticipate the different forms a US default will take at the end of summer 2009, a US default which can no longer be concealed concealable from this April (most taxes are collected in April in the US) onward (10). The perspective of a US default this summer is becoming clearer as public debt is now completely out of control with skyrocketing expenses (+41%) and collapsing tax revenues (-28%), as LEAP/E2020 anticipated more than a year ago. In March 2009 alone, the federal deficit has nearly reached USD 200-billion (way above the most pessimistic forecasts), i.e. a little less than half of the deficit recorded for the entire year 2008 (a record high year) (11). The same trend can be observed at every level of the country’s public organization: federal state, federated states (12), counties, towns (13), everywhere tax revenues are vanishing, suffocating the whole country with spiraling debts that no one can control anymore (not even Washington).

The next stage of the crisis will result from a Chinese dream. Indeed, what on earth can China be dreaming of, caught – if we listen to Washington – in the “dollar trap” of its 1,400-billion worth of USD-denominated debt (1)? If we believe US leaders and their scores of media experts, China is only dreaming of remaining a prisoner, and even of intensifying the severity of its prison conditions by buying always more US T-Bonds and Dollars (2).

In fact, everyone knows what prisoners dream of? They dream of escaping of course, of getting out of prison. LEAP/E2020 has therefore no doubt that Beijing is now (3) constantly striving to find the means of disposing of, as early as possible, the mountain of « toxic » assets which US Treasuries and Dollars have become, keeping the wealth of 1,300 billion Chinese citizens (4) prisoner. In this issue of the GEAB (N°34), our team describes the “tunnels and galleries” Beijing has secretively begun to dig in the global financial and economic system in order to escape the « dollar trap » by the end of summer 2009. Once the US has defaulted on its debt, it will be time for the « everyman for himself » rule to prevail in the international system, in line with the final statement of the London G20 Summit which reads as a « chronicle of a geopolitical dislocation », as explained by LEAP/E2020 in this issue of the Global Europe Anticipation Bulletin.

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Jim Sinclair’s Commentary

This is coming fast and NOW!

Markets are in total denial.

Pakistan in great danger, says Musharraf

Islamabad: The former Pakistani President, Pervez Musharraf, said on Sunday “The country is in great danger,” and added that the people should not get bogged down by minor issues and focus on bigger challenges.

“Pervez Musharraf said that the country was in great danger and advised all to shun looking into the past,” the News International reported.

Before leaving for Saudi Arabia, General (retired) Musharraf urged upon the nation to focus on the current myriad challenges. The people, instead of bogging down in minor issues, should think about the future of Pakistan, Pakistan News quoted him as saying.

Talking to mediapersons at Islamabad airport, General Musharraf said the people playing with the Lal Masjid issue were enemies of the country.

“Only 94 persons were killed in Lal Masjid, who were terrorists. If any action is initiated against me, I will respond to it,” he said.

More…

Islamist Leader in Pakistan Reveals Troubling Plans
By Pamela Constable
Washington Post Foreign Service
Sunday, April 19, 2009; 4:52 PM

ISLAMABAD, April 19 — A potentially troubling era dawned Sunday in Pakistan’s Swat Valley, where a top Islamist militant leader, emboldened by a peace agreement with the federal government, laid out an ambitious plan to bring a “complete Islamic system” to the surrounding northwest region and the entire country.

Speaking to thousands of followers in an address aired live from Swat on national news channels, cleric Sufi Mohammed bluntly defied the constitution and federal judiciary, saying he would not allow any appeals to state courts under the Islamic Sharia law system that will now prevail there as a result of the peace accord signed by the president Tuesday.

“The Koran says that supporting an infidel system is a great sin,” Mohammed said, referring to Pakistan’s modern democratic institutions. He declared that in Swat, home to 1.5 million people, all “un-Islamic laws and customs will be abolished,” and he suggested that the official imprimatur on the agreement would now pave the way for Sharia to be installed in other areas.

Mohammed’s dramatic speech echoed a rousing sermon in Islamabad Friday by another radical cleric, Maulana Abdul Aziz, who appeared at the Red Mosque in the capital after nearly two years in detention and urged several thousand chanting followers to launch a crusade for Sharia law nationwide.

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Jim Sinclair’s Commentary

This is the World’s biggest problem and a major point of upset for markets.

It has gone hot and is getting critical. Money cannot stop this.

Diplomacy equates to money and cannot stop this.

Fears for Pakistan grow as Taliban make gains
Sun Apr 19, 2009 8:38am BST
By Robert Birsel – Analysis

ISLAMABAD (Reuters) – Pakistan has repeatedly vowed action to stop militants but analysts say denial and dithering and a seething resentment of the United States among the Pakistani people have stymied effective policy.

Escalating violence by militants and the consolidation of their grip in some places, and infiltration into others, have raised fears about the spread of Taliban influence.

Nuclear-armed Pakistan falling under the sway of al Qaeda-linked militants is a nightmare scenario for the United States and Pakistan’s neighbors, and would doom U.S. efforts to stabilize Afghanistan.

“There’s a great sense of angst, a sense of unraveling,” said Adil Najam, professor of international relations at Boston University.

“It seems that everyone has lost control, including the military, of where things are going. I don’t think they’ve given up the fight, it’s just they don’t seem to know what they can do,” he said.

President Asif Ali Zardari secured more than $5 billion in aid last Friday after telling allies and aid donors in Tokyo he would step up the fight against militants.

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Posted by & filed under In The News.

Dear CIGAs,

For those who understand, when under attack emulate the courage, dedication, determination and willpower of Jean de La Valette.

Then you welcome the great opportunity to perform for those who depend on you.

Jim Sinclair’s Commentary

The FASB boost spoken about today’s financials was an earnings impact of $500 million that would show up in trading profits as a result of mark ups of OTC derivatives permanently and temporarily impaired (whatever that means).

Jim Sinclair’s Commentary

This is an interlude, not a bottom. Please keep your guard up.

Bernanke Says Crisis Damage Likely to Be Long-Lasting
By Craig Torres

April 17 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke said the collapse of U.S. lending will probably cause “long-lasting” damage to home prices, household wealth and borrowers’ credit scores.

“One would be forgiven for concluding that the assumed benefits of financial innovation are not all they were cracked up to be,” the Fed chairman said today in a speech at the central bank’s community affairs conference in Washington. “The damage from this turn in the credit cycle — in terms of lost wealth, lost homes, and blemished credit histories — is likely to be long-lasting.”

The U.S. central bank has cut the benchmark lending rate to as low as zero and taken unprecedented steps to stem the credit crisis through direct support of consumer finance and mortgage lending. The Fed plans to purchase as much as $1.25 trillion in agency mortgage-backed securities this year to support the housing market and is providing financing for securities backed by loans to consumers and small businesses.

Bernanke and the Federal Reserve Board approved rules last July to toughen restrictions on mortgages, banning high-cost loans to borrowers with no verified income or assets and curbing penalties for repaying a loan early. The action came after members of Congress and other regulators urged the Fed to use its authority to prevent abusive lending.

‘Onerous’ Restrictions

“We should not attempt to impose restrictions on credit providers so onerous that they prevent the development of new products and services in the future,” Bernanke said. Regulations should ensure “innovations are sufficiently transparent and understandable to allow consumer choice to drive good market outcomes.”

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Jim Sinclair’s Commentary

I am sure you heeded warnings here concerning your credit union.

Economic heat encroaching, credit unions seek U.S. help
By Mike Freeman (Contact) Union-Tribune Staff Writer
2:00 a.m. April 17, 2009

Through much of the ongoing financial crisis, credit unions have sidestepped the turmoil swamping the banking industry by sticking to their knitting of making mortgage, auto, consumer and some business loans at good rates to members.

Credit union trade groups like to call the industry a “movement” rather than a business. They can’t raise funds selling stock. They grow capital by keeping the earnings from the loans they make. They’re loath to take on too much risk.

“They’re set up as cooperatives, so they don’t have the pressure from shareholders for returns like you might have with a bank,” said David Ely, a banking professor at San Diego State University. “There is a mission to serve their members and do right by them in setting loan rates and deposit rates.”

But as the recession has deepened and layoffs have mounted, even conservative credit unions have been unable to emerge unscathed.

Amid stiff economic head winds from the housing collapse and mounting job losses that have buffeted financial institutions nationwide, only three of the 11 largest credit unions in San Diego County – Mission Federal, Pacific Marine and San Diego County Credit Union – made money in 2008.

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Jim Sinclair’s Commentary

Please consider what this means in the big picture.

It is totally ignored in market terms.

I believe that Pakistan’s transition to a Taliban State has the potential to be the market driver from 2010-2012.

Warning that Pakistan is in danger of collapse within months
Paul McGeough
April 13, 2009

PAKISTAN could collapse within months, one of the more influential counter-insurgency voices in Washington says.

The warning comes as the US scrambles to redeploy its military forces and diplomats in an attempt to stem rising violence and anarchy in Afghanistan and Pakistan.

“We have to face the fact that if Pakistan collapses it will dwarf anything we have seen so far in whatever we’re calling the war on terror now,” said David Kilcullen, a former Australian Army officer who was a specialist adviser for the Bush administration and is now a consultant to the Obama White House.

“You just can’t say that you’re not going to worry about al-Qaeda taking control of Pakistan and its nukes,” he said.

As the US implements a new strategy in Central Asia so comprehensive that some analysts now dub the cross-border conflict “Obama’s war”, Dr Kilcullen said time was running out for international efforts to pull both countries back from the brink.

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Pakistan in danger of fracturing into Islamist fiefdom’: report
Updated at: 1240 PST,  Friday, April 17, 2009
WASHINGTON: With extremist elements gaining ground every passing day, Pakistan is in an imminent danger of disintegrating into a fiefdom controlled by Islamist warlords, having “disastrous” implications, a media report has said.

“It’s a disaster in the making on the scale of the Iranian revolution,” an unnamed intelligence official with long experience in Pakistan was quoted as saying by the newspaper.

There is little hope to prevent nuclear-armed Pakistan from disintegrating into a fiefdom controlled by Islamist warlords and terrorists, who would then pose a far greater threat to the US than those in Afghanistan, intelligence officials keeping a close watch on the situation in the region, told the paper.

They said Pakistan’s government is in the danger of being overrun by Islamic militants and the development of such a situation could be dangerous not only for the US but also for the entire region.

“Pakistan has 173 million people and 100 nuclear weapons, an army which is bigger than American army, and the headquarters of al-Qaida sitting in two-thirds of the country which the government does not control,” David Kilcullen, a counterinsurgency consultant to the Obama administration was quoted as saying.

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Taliban Exploit Class Rifts in Pakistan
By JANE PERLEZ and PIR ZUBAIR SHAH
Published: April 16, 2009

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Naveed Ali/Associated Press
Around 3,000 people gathered for a rally in the Swat Valley of Pakistan on April 10 in support of the bill paving way for the implementation of Islamic law there.

PESHAWAR, Pakistan — The Taliban have advanced deeper into Pakistan by engineering a class revolt that exploits profound fissures between a small group of wealthy landlords and their landless tenants, according to government officials and analysts here.

The strategy cleared a path to power for the Taliban in the Swat Valley, where the government allowed Islamic law to be imposed this week, and it carries broad dangers for the rest of Pakistan, particularly the militants’ main goal, the populous heartland of Punjab Province.

In Swat, accounts from those who have fled now make clear that the Taliban seized control by pushing out about four dozen landlords who held the most power.

To do so, the militants organized peasants into armed gangs that became their shock troops, the residents, government officials and analysts said.

The approach allowed the Taliban to offer economic spoils to people frustrated with lax and corrupt government even as the militants imposed a strict form of Islam through terror and intimidation.

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Jim Sinclair’s Commentary

Retirement fund for the present Pakistani government.

Donors pledge $5bn for Pakistan

International donors have pledged more than $5bn (£3bn) to help stabilise Pakistan, at an aid conference co-hosted by Japan and the World Bank.

Nearly 30 countries and international organisations met in Tokyo to offer financial support to enable Pakistan to fight off Islamic extremism.

The United States and Japan each pledged $1bn (£671m).

In return, President Asif Ali Zardari said Pakistan would do its utmost to defeat militants in its border areas.

Pakistan’s stability is being threatened by al-Qaeda and Taleban forces in the lawless northwestern areas neighbouring Afghanistan.

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Jim Sinclair’s Commentary

Where have these experts been for the past four years?

Experts predict Pakistan’s collapse
By JONATHAN S. LANDAY
McClatchy Newspapers

WASHINGTON | A growing number of U.S. intelligence, defense and diplomatic officials have concluded that there’s little hope of preventing nuclear-armed Pakistan from disintegrating into fiefdoms controlled by Islamist warlords and terrorists.

“It’s a disaster in the making on the scale of the Iranian revolution,” said a U.S. intelligence official with long experience in Pakistan who requested anonymity.

Pakistan’s fragmentation into warlord-run fiefdoms that host al-Qaida and other terrorist groups would have grave implications for the security of its nuclear arsenal; for the U.S.-led effort to pacify Afghanistan; and for the security of India, the nearby oil-rich Persian Gulf and Central Asia, the U.S. and its allies.

“Pakistan has 173 million people and 100 nuclear weapons, an army which is bigger than the American Army, and the headquarters of al-Qaida sitting in two-thirds of the country which the government does not control,” said David Kilcullen, a counterinsurgency consultant to the Obama administration.

“Pakistan isn’t Afghanistan, a backward, isolated, landlocked place that outsiders get interested in about once a century,” agreed the U.S. intelligence official. “It’s a developed state.”

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Jim Sinclair’s Commentary

Going forward derivatives can be written to trade on exchanges. Going backward no derivative, because there is no standards, can be listed on any exchange.

CDS dealer trade volumes steady vs year ago-Markit
04.17.09, 11:49 AM EDT
Thomson Reuters

LONDON, April 17 (Reuters) – Dealers in credit derivatives averaged about the same number of trades in March as they did a year ago, Markit data showed, even after months of upheaval forced some dealers and investors out of the market.

Average monthly credit defaults swap (CDS) transactions per dealer amounted to more than 25,000 in March 2009, versus slightly less than 25,000 in March 2008, according to graphs in a quarterly report published by Markit on its Web site on Friday.

The number of dealers, however, decreased to 16 from 18 in 2008 after Bear Stearns and Lehman Brothers(LEHMQ) went out of business. The adjusted volume, therefore, would be 12 percent lower in 2009 than the amounts shown on the charts, or around 22,000 deals per dealer.

The unadjusted figure reached a peak in November 2008 at around 30,000 transactions, which after being adjusted would be between 26,000 and 27,000, or about equal to a previous record in August 2007.

Meanwhile, the backlog in CDS trade confirmations aged over 30 days fell to a new low of between 0.1 and 0.2 business days outstanding in March, the chart showed.

That is down sharply from 1 business day in March 2008.

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Posted by & filed under In The News.

Dear CIGAs,

Fuzzy Math? Isn’t that just dandy where our auditing board is concerned.

I am glad that I am 68.

Is there a future for my grandchildren?

My answer is to leave them minerals, not cash, in order to give them some protection in an ever growing heartless and meaner world.

Big banks’ fuzzy math
JPMorgan and Wells Fargo play up an obscure measure of their profitability to show how strong they are – but surging credit losses may hint otherwise
By Colin Barr, senior writer
Last Updated: April 16, 2009: 1:23 PM ET

NEW YORK (Fortune) — Just in time for TARP repayment season, the big banks have found a new way to show off their supposedly good health.

New York-based JPMorgan Chase (JPM, Fortune 500) became the latest financial giant to beat Wall Street’s expectations Thursday, posting a first-quarter profit of $2.1 billion, or 40 cents a share.

CEO Jamie Dimon has spent the past year boasting of his bank’s "fortress balance sheet," but he shifted gears Thursday, stressing another factor that he said will see JPMorgan through the economic crisis: the underlying earnings power of its core consumer, commercial and investment banking businesses.

JPMorgan said its pretax, pre-provision earnings — reflecting the profits the firm brings in before paying Uncle Sam or taking account of current and future loan losses — were $13.5 billion in the first quarter.

The bank hasn’t previously publicized this figure, which is favored by analysts but isn’t recognized under generally accepted accounting principles, in its earnings releases. But JPMorgan isn’t the only bank trotting it out.

A week ago, for instance, Wells Fargo (WFC, Fortune 500) surprised investors by saying it expected to post a $3 billion profit in its first quarter — double Wall Street’s expectations. Just in case the message wasn’t clear, the bank also said in that release that its pretax, pre-provision earnings for the quarter were $9.2 billion.

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Jim Sinclair’s Commentary

The is the "end of the beginning" and "the beginning of the end" for Pakistan as an ally of anybody allied to the West. Still, where is the analysis of what this will mean to markets? It is nowhere to be seen.

Out on bail, radical cleric calls for Islamic law across Pakistan
BY SAEED SHAH
ISLAMABAD — A radical cleric, just freed from detention on bail, returned in triumph Thursday night to the Red Mosque in the Pakistani capital and raised the slogan of Islamic revolution before thousands of excited supporters.

Bearded men packed the mosque, long associated with extremist Islam and with links to al-Qaida, while outside on the sidewalk rows of women sat clad in all-enveloping black burkas, only their eyes showing. Many were young adults who had come from Islamic seminaries.

"We will continue our struggle until Islamic law is spread across the country, not just in Swat," Abdul Aziz, who had been chief cleric at the mosque, told the fired-up congregation. Dressed in white flowing traditional clothes, with a white turban and his long white beard, he looked a messianic figure.

Aziz was carried in on the shoulders of supporters after arriving in a motorcade from the nearby city of Rawalpindi. He had been under house arrest since 2007 over terrorism-related charges until a court granted him bail earlier this week.

Earlier this week, Pakistan’s president bowed to pressure from extremists and agreed to impose Islamic law in Swat, a valley northwest of Islamabad, in a bid to end a two-year insurgency there by Pakistani Taliban. Now with Aziz’s release, Islamists have an ideologue to rally around.

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Jim Sinclair’s Commentary

That is a hard call to make if the trading profits are really "at risk" trading profits. Are they?

JPMorgan, Goldman trading profits unlikely to last
Fri Apr 17, 2009 12:29am BST
By Elinor Comlay – Analysis

NEW YORK (Reuters) – JPMorgan Chase and Goldman Sachs Group racked up billions of dollars in trading profits in a volatile first quarter — but don’t expect these lucrative markets to last into the next quarter, or to necessarily benefit other banks, analysts say.

Goldman and JPMorgan, seen as probable long-term survivors amid the carnage that ravaged most of the industry, boosted their trading risk levels in the first three months of the year to exploit swings in asset prices.

They both expanded market share following Lehman Brothers’ demise in September and Bank of America Corp’s capture of Merrill Lynch & Co.

Citigroup Inc, another major competitor in past years and under intense scrutiny following a government rescue, will see whether its hobbled financials significantly weakened its trading business when it reports quarterly results on Friday.

But trading profits and market-share gains may not be so easy to come by in the second quarter, analysts caution, and it may be too late for other banks like Morgan Stanley — which reports next Wednesday — to catch up.

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Jim Sinclair’s Commentary

What else is shrouded?

If you would like to be terrified read about it in Webbot.

Fed Shrouding $2 Trillion in Bank Loans in ‘Secrecy,’ Suit Says 
By Mark Pittman

April 16 (Bloomberg) — U.S. taxpayers need to know the risks behind the Federal Reserve’s $2 trillion in lending to financial institutions because the public is now an “involuntary investor” in the nation’s banks, according to a court filing by Bloomberg LP.

The Fed refuses to name the borrowers, the amounts of loans or assets banks put up as collateral under 11 programs, arguing that doing so might set off a run by depositors and unsettle shareholders. Bloomberg, the New York-based company majority- owned by Mayor Michael Bloomberg, sued Nov. 7 under the Freedom of Information Act on behalf of its Bloomberg News unit. It made the new filing yesterday.

“The Board’s arguments are based on wispy speculation, lack evidentiary support and are contradicted by economic theory,” said Thomas Golden and Jared Cohen, lawyers with New York-based Willkie Farr & Gallagher LLP, in a motion asking the judge to require disclosure.

“These government actions, which have been shrouded in secrecy, are at the heart of Bloomberg’s FOIA requests,” the attorneys said.

Members of Congress also have demanded more information than President Barack Obama and former President George W. Bush have disclosed on the bailout of the U.S. financial industry. Congress approved $700 billion to bolster banks, whose losses on mortgage securities and home loans contributed to the recession.

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Just a Reminder:

Armstrong’s dates are a product of his write up "It’s Just Time." They are mathematics, not good guesses.

He sees either April 19th or June for the low in the gold market. Assuming it is June then he sees gold reaching $5000.

Don’t let the bastards get you down!

Jim Sinclair’s Commentary

This is definitely coming because it already exists.

Will public pensions be next bailout?
4/16/2009 8:53:00 AM
John Nothdurft

Along with the stock market, retirement savings, and taxpayers’ sanity, state and municipal government employee defined-benefit pension funds are reeling from the financial meltdown.

The current economic turmoil and stock market downturn have caused government employee pension funds to lose hundreds of billions of dollars. The crisis only reinforces the need for states to move their pension systems from the onerous defined-benefit obligation to a more mobile and sustainable defined-contribution model.

It’s a potentially catastrophic problem.

According to the Center for Retirement Research at Boston College, as of Dec. 16, 2008 public pensions in the United States were underfunded by nearly $1 trillion. Worst is Illinois, where the pension system has only 54 percent of the necessary funding and an unfunded liability of $54.4 billion.

Even before our current financial shakeup, more than 20 million state and local government employees’ pensions nationwide were in dire fiscal shape.

For example, in June 2007 New Jersey’s unfunded liability was already $28 billion. Since then the number has soared to more than $52 billion, with roughly 45 percent of the obligation unfunded.

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Jim Sinclair’s Commentary

Mark to market accounting is a truth machine. Here is what is properly defined as a gimmick, a falsehood machine.

Wells Fargo’s Profit Looks Too Good to Be True: Jonathan Weil
Commentary by Jonathan Weil

April 16 (Bloomberg) — Wells Fargo & Co. stunned the world last week by proclaiming it had just finished its most profitable quarter ever. This will go down as the moment when lots of investors decided it was safe again to place blind faith in a big bank’s earnings.

What sent Wells shares soaring on April 9 was a three-page press release in which the San Francisco-based bank said it expected to report first-quarter net income of about $3 billion. Wells disclosed few details of what was in that figure. And by pushing the stock up 32 percent that day to $19.61, investors sent a clear message: They didn’t care.

Dig below the surface of Wells’s numbers, though, and there are reasons to be wary. Here are four gimmicks to look out for when the company releases its first-quarter results on April 22:

Gimmick No. 1: Cookie-jar reserves.

Wells’s earnings may have gotten a boost from an accounting maneuver, since banned, that it used last year as part of its $12.5 billion purchase of Wachovia Corp. Specifically, Wells carried over a $7.5 billion loan-loss allowance from Wachovia’s balance sheet onto its own books — the effect of which I’ll explain in a moment.

First, a quick tutorial: Loan-loss allowances are the reserves lenders set up on their balance sheets in anticipation of future credit losses. The expenses that lenders record to boost their loan-loss allowances are called provisions. As loans are written off, lenders record charge-offs, reducing their allowance.

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Jim Sinclair’s Commentary

This is what OTC derivatives have done to people.

Economic survivalists take root
By Judy Keen, USA TODAY

When the economy started to squeeze the Wojtowicz family, they gave up vacation cruises, restaurant meals, new clothes and high-tech toys to become 21st-century homesteaders.

Now Patrick Wojtowicz, 36, his wife Melissa, 37, and daughter Gabrielle, 15, raise pigs and chickens for food on 40 acres near Alma, Mich. They’re planning a garden and installing a wood furnace. They disconnected the satellite TV and radio, ditched their dishwasher and a big truck and started buying clothes at resale shops.

"As long as we can keep decreasing our bills, we can keep making less money," Patrick says. "We’re not saying this is right for everybody, but it’s right for us."

Hard times are creating economic survivalists such as the Wojtowicz family who are paring expenses by becoming more self-sufficient.

Reviving "almost lost" skills and preparing for tough days make people feel more in control, says Charlotte Richert, consumer sciences educator for Oklahoma State University’s Extension Service in Tulsa County.

Karen Gulliver, MBA program chair at Argosy University in Eagan, Minn., expects the movement to grow as the sour economy forces people to reassess priorities. People are asking, "Do I really want to be 100% vulnerable with no self-sufficiency skills if something happens?" she says.

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Jim Sinclair’s Commentary

Just to keep you balanced as the media assures you of everything everywhere.

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Jim Sinclair’s Commentary

This strategy is by no means limited to South America.

The West has no plan, reacting only to immediate problems and needs.

Asia plans 100 years in advance ands works the plan. No wonder the dollar is headed South while Asia, especially China, rises consistently.

China bashers simply don’t get it.

It is patriotic to see what is and make a plan, not what isn’t and just act reactively.

Deals Help China Expand Sway in Latin America
By SIMON ROMERO and ALEXEI BARRIONUEVO
Published: April 15, 2009

CARACAS, Venezuela — As Washington tries to rebuild its strained relationships in Latin America, China is stepping in vigorously, offering countries across the region large amounts of money while they struggle with sharply slowing economies, a plunge in commodity prices and restricted access to credit.

In recent weeks, China has been negotiating deals to double a development fund in Venezuela to $12 billion, lend Ecuador at least $1 billion to build a hydroelectric plant, provide Argentina with access to more than $10 billion in Chinese currency and lend Brazil’s national oil company $10 billion. The deals largely focus on China locking in natural resources like oil for years to come.

China’s trade with Latin America has grown quickly this decade, making it the region’s second largest trading partner after the United States. But the size and scope of these loans point to a deeper engagement with Latin America at a time when the Obama administration is starting to address the erosion of Washington’s influence in the hemisphere.

“This is how the balance of power shifts quietly during times of crisis,” said David Rothkopf, a former Commerce Department official in the Clinton administration. “The loans are an example of the checkbook power in the world moving to new places, with the Chinese becoming more active.”

Mr. Obama will meet with leaders from the region this weekend. They will discuss the economic crisis, including a plan to replenish the Inter-American Development Bank, a Washington-based pillar of clout that has suffered losses from the financial crisis. Leaders at the summit meeting are also expected to push Mr. Obama to further loosen the United States policy toward Cuba.

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Jim Sinclair’s Commentary

More Armstrong dated April 15th 2009

Martin Armstrong – Financial Panics = Political Change!
Wednesday, April 15, 2009

As promised, here is Mr. Armstrong’s latest.

In it he covers a wide gamut from talking about what I call the “events that tend to follow economic events,” to the concentration of capital, to debts.

But then he sets out to explain the way things should work in his well informed opinion. Restore Rule of Law, abolish the income tax as our forefathers envisioned, regulatory reform, and even changing our currency system.

He is correct that a window of opportunity is coming. His inputs are unique and deserve consideration.

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Jim Sinclair’s Commentary

Be very careful of what you plan without full knowledge.

It might just embarrass the critic.

Nassim Taleb Says Banks `Hijack Us,’ Can’t Be Trusted

Jim Sinclair’s Commentary

The level off at these numbers is not good news.

General Growth Files Biggest U.S. Property Bankruptcy (Update1)
By Daniel Taub and Brian Louis

April 16 (Bloomberg) — General Growth Properties Inc. filed the biggest real estate bankruptcy in U.S. history after amassing $27 billion in debt during an acquisition spree that turned it into the second-largest shopping mall owner.

The owner of Boston’s Faneuil Hall and the South Street Seaport in New York City ended a seven-month effort today to refinance its debt. The company listed $29.5 billion in assets and debts of about $27.3 billion in the Chapter 11 filing. General Growth will continue operating its more than 200 properties.

“We intend to emerge as a leaner company,” General Growth President Thomas Nolan said in an interview today. “We want to come out as a less leveraged company. Our business model remains strong.”

General Growth collapsed after spending $11.3 billion to buy commercial-property developer Rouse Co. in 2004 only to get caught in the credit crunch and a U.S. recession that has cut spending and property values. Banks have reduced lending amid mortgage-related writedowns. Commercial real estate prices in the U.S. dropped 15 percent last year, according to Moody’s Investors Service. Retail sales in the U.S. unexpectedly fell in March as soaring job losses forced consumers to pull back.

The filing lists Eurohypo AG, a unit of Commerzbank AG, as General Growth’s largest unsecured creditor with claims totaling $2.59 billion under two loans. Noteholders are owed about $4 billion.

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Posted by & filed under In The News.

Jim Sinclair’s Commentary

Ok, who did it? That was supposed to be our Easter Weekend!

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Jim Sinclair’s Commentary

This has to give the geriatric frat boys a big laugh at the NYC suburbia country clubs.

GM bonds: Big trouble for small investors
Nearly $6 billion of GM’s unsecured debt is held by individual investors like Harley VanDeloo. A GM bankruptcy could mean a ‘significant’ loss to his income.
By Chris Isidore, CNNMoney.com senior writerApril 15, 2009: 3:38 AM ET

NEW YORK (CNNMoney.com) — Harley VanDeloo, a 69-year old retiree in Thousand Oaks, Calif., has resigned himself to losing an important piece of his retirement income: interest payments from $25,000 worth of General Motors bonds.

The bonds were due to pay VanDeloo about $1,000 twice a year, an important supplement to his social security benefits that he said are his main source of income.

"It’s not going to kill us, but it’s significant," he said about the loss of income.

VanDeloo, a self-described car enthusiast who says his GM van is the best car he’s ever owned, bought the bonds at a 20% discount just over a year ago. He believed GM (GM,Fortune 500) was on the verge of a turnaround and that the bonds were relatively safe despite having already been downgraded to junk bond status by the rating agencies.

He said he didn’t care about the bonds’ prices. He was attracted instead to the better than 8% yield the bonds paid. "They were due to be paying off well after I’m gone," he said about the debt, which matures in 2033.

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Jim Sinclair’s Commentary

Jim’s 2006 Formula functions:

Select a city.
It is omnipresent.
It cannot be reversed by Tarp, or any acronym.
Your town and city are experiencing just this, no matter where you live.

Prepared text of Villaraigosa’s State of the City speech
Tuesday, 14 April 2009
Fellow Angelenos:

These are no ordinary times in the City of Los Angeles, or for that matter, any place where people depend on the global economy.

Here in L.A., the recession is taking a terrible toll.  230,000 Angelenos now standing on unemployment lines.  The jobless rate simmering at 12% and rising. The mortgage crisis has now forced 21,000 of our families to box up their belongings and vacate their homes, many experiencing for the first time in their lives the humiliating pain — the frustration — that comes in having to put your hand out and rely on the help of strangers to survive.

We have thousands of business owners struggling to make payroll.  Trade flows and ship traffic are idling at the port.  And the recession has done lasting damage to one of our most vital civic institutions: our great newspapers.

Needless to say, the recession has hit government particularly hard.

The need for our services is up.  Revenue to pay for them is down. Here in L.A., we face a $530-million  deficit this year alone.

The situation at the state level — where the system seems hardwired for failure — is even more extreme.  That’s why it is absolutely critical that we lock arms and approve the bipartisan budget stabilization package on May 19 to prevent us from destroying the very services that Californians depend on.

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Jim Sinclair’s Commentary

Consider what Pakistan means to markets as a major domino about to fall.

Pakistan grants bail to detained hard-line cleric
By ZARAR KHAN – 8 hours ago

ISLAMABAD (AP) — Pakistan’s Supreme Court ordered the release on bail Monday of a hard-line cleric who had been detained since shortly before soldiers stormed his mosque in 2007, killing scores of people and energizing the country’s Islamist insurgency.

Maulana Abdul Aziz was granted bail while the court considers the charges against him in relation to the siege of the Red Mosque in the capital, Islamabad, his lawyer Shaukat Siddiqui told reporters outside the court. Prosecutors were not available for comment.

Aziz was arrested as he tried to sneak out of the mosque dressed in an all-covering burqa worn by some Muslim women.

Several days later, security forces stormed the mosque and adjoining buildings after scores of heavily armed militants inside refused to surrender. The government says 102 people, including 11 security personnel, were killed in the standoff.

Aziz is facing a raft of charges ranging from abetting terrorists to illegally occupying a building.

Pakistan has a history of failing to successfully prosecute militants, many of whom are believed to have once had links with the country’s armed forces.

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Jim Sinclair’s Commentary

Note how concerned the youngsters are. Even if this is a professional act it is a great act and deserves a reward.

It is definitely getting very bad…

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(Female cats are drama queens)

Jim Sinclair’s Commentary

It is absolutely amazing that Nassim Taleb did not get the hook on financial TV this morning.

He ripped into every plan and every person of note from the Treasury, Federal Reserve and right up to the Fat Cats.

The look on the interviewer’s face was a marvel to behold. He says nothing has changed. Nothing is strengthening. The weaknesses are still there and there is no effective plan or people to change that.

I understand he is a professor of Risk Engineering so I wonder what he teaches when you listen to his views.

Professor Taleb, I am open to invitation to a lecture and promise to sit quietly and attentively. I will gladly pay for a ticket if it is public.

Please listen to this man if you have not heard him interviewed.

Black Swan Author Nassim Taleb Joins Arianna on CNBC’s Squawk Box

 

Nassim Nicholas Taleb, author of The Black Swan, joined Arianna on Squawk Box to discuss the financial meltdown, mark-to-market accounting and ways to build a more robust economic system.

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Ten principles for a Black Swan-proof world
By Nassim Nicholas Taleb
Published: April 7 2009 20:02 | Last updated: April 7 2009 20:02

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess.

Instead, find the smart people whose hands are clean.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without

disincentives: capitalism is about rewards and punishments, not just rewards.

5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.

6. Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging”

products, and from gullible regulators who listen to economic theorists.

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Posted by & filed under In The News.

Dear CIGAs,

Here is a full library of Martin Armstrong for those interested. His last is dated April 9th 2009

www.scribd.com/kzuur58

Jim Sinclair’s Commentary

The Taliban start the move inland. Pakistan is history.

So few have thought this situation out.

Taliban, Punjabi militants take insurgency to Pakistan’s heartland: Report
New York, April 14, 2009
First Published: 10:26 IST(14/4/2009)
Last Updated: 11:25 IST(14/4/2009)

As they come under US Drone attacks in the tribal areas on the Pakistan-Afghan border, Taliban militants have joined hands with Punjabi militants to push insurgency into the heartland of Pakistan, says the New York Times.

Already villages and towns in Dera Ghazi Khan district in south-western Punjab province are virtually under the control of militants, posing a new challenge to the stability of Pakistan, the paper said on Monday.

The report quoted police officials warning Islamabad that if it does not take decisive action, insurgency could spread in Punjab, leading to destabilization of Pakistan.

"I don’t think a lot of people understand the gravity of the issue…if you want to destabilize Pakistan, you have to destabilise Punjab (first)," the report quoted a senior Pakistani police official as saying.

Pakistani Punjab accounts for more than half of the country’s population. After the Swat Valley which is now under Taliban control, the report says, Islamic militants have infiltrated south-west Punjab villages and town so deeply that they have turned them "no-go zones” and imposed their version of Islam on residents.

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Jim Sinclair’s Commentary

Along with the dollar went capitalism. Along with the Constitution went Democracy.

Fed’s Flood May Leave Democracy Needing Bailout: Kevin Hassett
Commentary by Kevin Hassett

April 13 (Bloomberg) — The wise men of Washington keep finding more core beliefs that we have to give up. First it was free markets. Now it’s democracy.

The financial rescue may be the least popular big-ticket government program in history. If the U.S. Treasury decides it needs more money to keep the bailout going, it is anybody’s guess whether Congress would provide it.

As a result, Treasury and the Federal Reserve have been running what feels to this lifelong student of fiscal policy like a scam.

Many economists believe that helping financial institutions turn their less liquid assets into hard cash is a key step toward returning them to good footing. The best way to achieve that in a democracy would be for Congress to appropriate the funds to acquire the assets and for Treasury to borrow the money that i t needs.

But Congress is unwilling to appropriate enough money, so Treasury and the Fed have cooked up a work-around: the Fed buys the assets instead. Since the Fed exists outside of the normal budget process, no permission from elected officials is required.

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Jim Sinclair’s Commentary

It is legal to lie about the value of your assets, but let’s be real. That lie does not create CASH fast when you need it to survive.

Bank of America May Need More Capital, Wachovia Says (Update2)
By David Mildenberg

April 14 (Bloomberg) — Bank of America Corp., the largest U.S. bank, is not as well capitalized as most of its peers and has “precious little wiggle room” before it may be forced to sell new stock, according to Wachovia Capital Markets LLC.

Bank of America retains “sizeable exposures to what we would deem are worrisome assets,” including $148 billion in home equity loans and credit lines and $111.5 billion in credit- card and other revolving loans, Wachovia’s Matthew Burnell said in a report dated yesterday. He initiated coverage of Charlotte, North Carolina-based Bank of America at “underperform” with a valuation range of $7 to $8 a share.

Burnell joins Michael Mayo of Calyon Securities and Paul Miller of FBR Capital Markets among analysts who said Bank of America may need to raise capital this year because of borrower defaults. The lender raised $10 billion in October selling stock, and the U.S. government has purchased $45 billion in preferred shares to bolster the firm.

Burnell expects Bank of America to lose 13 cents per share this year, mostly because of higher credit costs in its consumer and small business banking unit. The average estimate of 21 analysts compiled by Bloomberg is a 39-cent profit in 2009.

Bank of America doesn’t comment on analyst reports, said Scott Silvestri, a spokesman.

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Jim Sinclair’s Commentary

You cannot lie your way out of a credit crisis, even if it is legalized, wherein trust is missing between parties, all who know the values are cartoons.

"The Financial Accounting Standards Board (FASB) was strong-armed by Congress to relax mark-to-market accounting rules to allow banks to value illiquid securities based on expected cash flow models rather than recent prices. If these rules were not eased, write downs would be rising because the market prices of these loans continue to fall.

“Coincidence? I think not,” says economist Ed Yardeni who figures that suspension of mark-to-market padded Wells Fargo’s bottom line leading to higher than expected earnings of US$3-billion in Q1. At the very least, says Yardeni, mark-to-market allowed Wells to end toxic write-offs."

Dressing up the Banks
Posted: April 14, 2009, 10:33 AM by Jonathan Ratner
If the home team has a weak goaltender, narrow the goal posts. Relaxation of mark-to-market rules is coinciding with a profit recovery for U.S. banks in the first quarter of 2009. Despite the rally in bank stocks, papering over losses is no reason to buy banks. Investors should take profits on the quarter and await a sustained recovery in the housing market.

The Financial Accounting Standards Board (FASB) was strong-armed by Congress to relax mark-to-market accounting rules to allow banks to value illiquid securities based on expected cash flow models rather than recent prices. If these rules were not eased, write downs would be rising because the market prices of these loans continue to fall.

“Coincidence? I think not,” says economist Ed Yardeni who figures that suspension of mark-to-market padded Wells Fargo’s bottom line leading to higher than expected earnings of US$3-billion in Q1. At the very least, says Yardeni, mark-to-market allowed Wells to end toxic write-offs.

Goldman Sachs took things one step further when it reported US$1.8-billion in profits in the first quarter of 2009. The company conveniently dropped a US$1.3-billion pre-tax December loss on its books by shifting from a fiscal year ending November to a December year end, according to Barry Ritholtz of The Big Picture.

The change in valuation on bank assets from market prices to expected cash flow could eventually catch up with banks. As defaults rise the gap between these two valuation methods will converge because cash flows will fall. This is a major risk to owning banks and betting on a sustained economic recovery at this juncture

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Jim Sinclair’s Commentary

You know those Rudolph Steiner free spirit types. I am certain the 3 year olds were are the heart of this not-event.

Raided school ‘knew nothing’ about power station protesters
By Theo Usherwood, Press Association
Tuesday, 14 April 2009

The school where 114 suspected protesters were arrested in connection with a plot to demonstrate at a power station said today that it knew nothing about the plans.

Police swooped on the Iona School in Sneinton Dale, Nottingham, yesterday, saying the suspects, who were meeting at the school, posed "a serious threat" to the nearby Ratcliffe-On-Soar plant.

Those arrested have now been interviewed and released on bail, a spokeswoman for Nottinghamshire Police said earlier.

Today Richard Moore, a teacher at the school, said no-one had permission to hold a meeting there.

In a statement, he said: "We are as shocked as anyone else to discover the events that had taken place on our premises.

"We had, and have, no knowledge of these activities and any access to the premises was completely unauthorised.

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Jim Sinclair’s Commentary

Quantitative easing or just good old debt Monetizing yourself? I would go for both.

Treasuries Gain After Federal Reserve Buys Government Debt
By Dakin Campbell

April 13 (Bloomberg) — Treasuries rose after the Federal Reserve completed the first of three buybacks of government debt slated for this week in an effort to lower borrowing costs and revive the world’s largest economy.

Yields on 10-year notes fell the most since March 18, when policy makers announced the $300 billion program, as the central bank bought $7.37 billion in two- and three-year securities. The Fed has acquired $43.9 billion of Treasuries since beginning the purchases on March 25.

“The U.S. government is the 800-pound gorilla in the bond market,” Andrew Brenner, co-head of structured products and emerging markets in New York at MF Global Inc., the world’s largest broker of exchange-traded futures and options contracts, wrote in a note to clients. “Bond markets acted in accordance with the liquidity provided and traded up.”

The yield on the 10-year note fell seven basis points, or 0.07 percentage point, to 2.86 percent at 4:47 p.m. in New York, according to BGCantor Market Data. The price of the 2.75 percent security due February 2019 rose 18/32, or $5.63 per $1,000 face amount, to 99 2/32.

Ten-year yields have traded in a range between 2.45 percent and 3.05 percent since late January as concerns about record Treasury supply were offset by the Fed’s purchase program.

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Jim Sinclair’s Commentary

Sentiment indices may have recent gotten kudos in the press, but buying is not evident. This problem is primarily financial, huge, growing and threatening more pain and suffering for the man in the street.

Stores suffer big drop in March sales
Unexpected 1.1% decline in overall sales follows two months of gains.
By Parija B. Kavilanz, CNNMoney.com senior writer
Last Updated: April 14, 2009: 9:34 AM ET

NEW YORK (CNNMoney.com) — Retail sales suffered an unexpected big decline in March which broke two straight months of improving sales, the government reported Tuesday.

The Commerce Department said total retail sales fell 1.1% last month, compared with February’s revised gain of 0.3%. Sales in February were originally reported to have dipped 0.1%.

Economists surveyed by Briefing.com had been expecting an increase of 0.3% in March.

Sales excluding autos and auto parts fell a surprising 0.9% compared to a revised 1% increase in the measure for February. February ex-auto sales were originally reported to have increased 0.7%.

Economists had forecast March sales, excluding auto purchases, to be unchanged from the previous month.

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Jim Sinclair’s Commentary

Go Trader Dan!

Gov. Perry Backs Resolution Affirming Texas’ Sovereignty Under 10th Amendment
HCR 50 Reiterates Texas’ Rights Over Powers Not Otherwise Granted to Federal Government
April 09, 2009

AUSTIN – Gov. Rick Perry today joined state Rep. Brandon Creighton and sponsors of House Concurrent Resolution (HCR) 50 in support of states’ rights under the 10th Amendment to the U.S. Constitution.

“I believe that our federal government has become oppressive in its size, its intrusion into the lives of our citizens, and its interference with the affairs of our state,” Gov. Perry said. “That is why I am here today to express my unwavering support for efforts all across our country to reaffirm the states’ rights affirmed by the Tenth Amendment to the U.S. Constitution. I believe that returning to the letter and spirit of the U.S. Constitution and its essential 10th Amendment will free our state from undue regulations, and ultimately strengthen our Union.”

A number of recent federal proposals are not within the scope of the federal government’s constitutionally designated powers and impede the states’ right to govern themselves. HCR 50 affirms that Texas claims sovereignty under the 10th Amendment over all powers not otherwise granted to the federal government.

It also designates that all compulsory federal legislation that requires states to comply under threat of civil or criminal penalties, or that requires states to pass legislation or lose federal funding, be prohibited or repealed.

HCR 50 is authored by Representatives Brandon Creighton, Leo Berman, Bryan Hughes, Dan Gattis and Ryan Guillen.

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Jim Sinclair’s Commentary

To my understanding, but please correct me if I am wrong, consumers cannot exhaust their credit card debt anymore via bankruptcy.

Bankruptcies surge despite law meant to curb them
Apr 13, 6:38 PM (ET)
By MIKE BAKER

RALEIGH, N.C. (AP) – The number of U.S. businesses and individuals declaring bankruptcy is rising with a vengeance amid the recession, despite a three-year-old federal law that made it much tougher for Americans to escape their debts, an Associated Press analysis found.

"There’s no end in sight," said bankruptcy lawyer Bryan Elliott of Hickory, N.C., who is working seven days a week and scheduling prospective clients a month in advance. "To be doing this well and having this much business, it is depressing. It’s not a laugh-a-minute job."

Nearly 1.2 million debtors filed for bankruptcy in the past 12 months, according to federal court records collected and analyzed by the AP. Last month, 130,831 sought bankruptcy protection – an increase of 46 percent over March 2008 and 81 percent over the same month in 2007.

Bob Lawless, a professor at the University of Illinois College of Law, said bankruptcies could reach 1.5 million this year and level off at 1.6 million next year – around the same time economists expect an economic recovery to begin.

Congress voted in 2005 to make bankruptcy more cumbersome after years of intense lobbying from the nation’s lenders, who complained that people were abusing the system. Before the move to change the law, bankruptcies were running at what was then an all-time high of about 1.6 million per year.

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Jim Sinclair’s Commentary

As goes Motors so goes the USA.

GM stock hit by bankruptcy report

US carmaker General Motors has seen its shares fall sharply after a report that the US government wants the firm to start bankruptcy proceedings by 1 June.

The New York Times said the Treasury Department wants a court-led reorganisation, but the firm wants to reorganise without going to court.

Shares in the firm were 16% lower at $1.71 in afternoon trade in New York.

On 30 March, the US government gave GM 60 days to develop a new restructuring plan and gain further state aid.

‘Fast track’

The White House has already given the firm $13.4bn (£9bn) in public money to prevent it from collapsing, but any additional aid requires the firm to meet tougher rules.

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Jim Sinclair’s Commentary

Oh my God, Mark to Market is called a gimmick!

–noun
1. an ingenious or novel device, scheme, or stratagem, esp. one designed to attract attention or increase appeal.
2. a concealed, usually devious aspect or feature of something, as a plan or deal: An offer that good must have a gimmick in it somewhere.
http://dictionary.reference.com/browse/gimmick

Steve: FASB Retreats

Steve Forbes, 04.13.09, 06:00 AM EDT

Investors cheered as the accounting gimmick known as mark-to-market was softened by the Financial Accounting Standards Board.

Investors cheered as the accounting gimmick known as mark-to-market was softened by the Financial Accounting Standards Board. And not a moment too soon, as these rules were destroying our financial system. We can allow ourselves a moment of thanks that common sense prevailed for once. But there is still much work to be done.

Enacted to prevent another Enron, mark-to-market never made sense during our current crisis. It forced banks to write assets down to market prices, even if they hadn’t sold them or even if there was no market. During a deep recession, this proved a disaster. Can you imagine writing down a home you hadn’t sold? It would bankrupt you, the way mark-to-market nearly bankrupted us all.

The reforms, though, should have been more sweeping. Recalcitrant regulators could still mitigate much of the good. To get things really moving, our government now needs to fix our atrocious tax code. Individuals and businesses spend 7.6 billion hours a year filing their taxes, at a cost of $193 billion. It’s immoral to squander so much time and money. Barack Obama could sideline Republicans by instituting a flat tax, but this is likely too progressive for this president.

Another needed action is to tie the dollar back to gold. All these new spending programs will be paid for with inflationary dollars, creating a new risk for down the road. Alexander Hamilton understood that tying the greenback to gold created economic progress and a lawful society. And it did so for almost 200 years. We need vision like that again, or any current rallies could prove short-lived.

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Jim Sinclair’s Commentary

Amateurs or professional. He is right because there is no practical means of draining the unprecedented injection of monetary stimulus.

Why Our Credit Crunch Mirrors the Weimar Hyperinflation from 1919-1923
April 12, 2009

I am an amateur economist. But, one doesn’t need years of schooling to be a better "economist" than Ben Bernanke. One merely needs to take the blinders off and release common sense. A broad background in law, economics and history helps, but it is not absolutely necessary. Economics is the study of human nature as it applies to money. So, it is precisely those who are narrowly educated, like some professional economists who don’t study enough history, take an intensely academic viewpoint on things, and who don’t understand fundamental human nature, who get things wrong. A narrowness of outlook and training may be blinding people like Ben Bernanke from reality, but, if they are operating knowingly and intentionally, as some claim, the situation is even more frightening.

Unfortunately, Ben Bernanke has been wrong on almost all his predictions concerning the course of this crisis. That has been true since the beginning. Where, then, can we obtain the confidence that he knows what he is doing, or, frankly, that he knows more than we do, as he should? Many wrong-headed people seem to believe that we must throw away common sense and listen to him, and the others who think like him, even though we have been consistently correct, over the past 4 years, and he has been consistently wrong. The American people understandably have little confidence in the Washington crowd. Is this surprising in light of the events? What assurance is there that they know how to address this situation, when they first failed to regulate the financial madness, and, then, afterward, were completely wrong on almost all economic projections, one after another?

One must reach the inevitable conclusion that neither Bernanke, nor his comrades, such as Timothy Geithner, actually "know" what they are doing. Instead, that crowd in Washington DC, think that if they throw money around, it will land somewhere, and help things. They are wrong. But, to partly achieve this goal, they have forced changes in accounting standards, legalizing misrepresentation of bank bookkeeping, and removed "mark to market" standards, replacing those standards with a system of "mark to fantasy" that is remarkably similar to that which previously existed and caused this crisis. "Mark to fantasy" accounting, now the order of the day once again, will allow insolvent banks to present the false appearance of big profits this quarter, even as they are really on the brink of failing. The end result will be more economic imbalances, as investors unknowingly misallocate their investment dollars to buy into the fraud.

In truth, there is only one way to save the zombie banks, and it is not through faked-up accounting books. The only way is to inflate their obligations away, while increasing the value of their assets at the expense of the rest of us. That appears to be the plan, if there is any plan. But, if Ben Bernanke and that crowd do know what they are doing, the most nefarious heist against the American people, as well as other innocent folks all over the world, is being planned. The upcoming massive inflation is going to be a stealth tax upon millions of innocent people, all for the benefit of a few still wealthy bank executives, who made huge mistakes, and should be forced to pay for those mistakes themselves. I will give Ben Bernanke and Timothy Geithner the benefit of the doubt and conclude, until presented with more evidence, that they simply don’t know what they are doing.

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Jim Sinclair’s Commentary

Here is a small example of how inflation begins to work itself through an economy as tax revenues start to seriously contract. Watch when tax revenues fall off the cliff.

Cities Turn to Fees to Fill Budget Gaps
By DAVID SEGAL
April 11, 2009

After her sport utility vehicle sideswiped a van in early February, Shirley Kimel was amazed at how quickly a handful of police officers and firefighters in Winter Haven, Fla., showed up. But a real shock came a week later, when a letter arrived from the city billing her $316 for the cost of responding to the accident.

“I remember thinking, ‘What the heck is this?’ ” says Ms. Kimel, 67, an office manager at a furniture store. “I always thought this sort of thing was covered by my taxes.”

It used to be. But last July, Winter Haven became one of a few dozen cities in the country to start charging “accident response fees.” The idea is to shift the expense of tending to and cleaning up crashes directly to at-fault drivers. Either they, or their insurers, are expected to pay.

Such cash-per-crash ordinances tend to infuriate motorists, and they often generate bad press, but a lot of cities are finding them hard to resist. With the economy flailing and budgets strained, state and local governments are being creative about ways to raise money. And the go-to idea is to invent a fee — or simply raise one.

Ohio’s governor has proposed a budget with more than 150 new or increased fees, including a fivefold increase in the cost to renew a livestock license, as well as larger sums to register a car, order a birth certificate or dump trash in a landfill. Other fees take aim at landlords, cigarette sellers and hospitals, to name a few.

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Jim Sinclair’s Commentary

Look at the new news for the West!

West Warned on Nuclear Terrorist Threat From Pakistan
April 12, 2009 by national

The next few months will be crucial in defusing a global terrorist threat that would be even deadlier than the conflicts in Afghanistan and Iraq, a leading Washington counter-terrorism expert warns.

David Kilcullen — a former Australian army lieutenant colonel who helped devise the US troop surge that revitalised the American campaign in Iraq — fears Pakistan is at risk of falling under al-Qaeda control.

If that were to happen, the terrorist group could end up controlling what Dr Kilcullen calls “Talibanistan”. “Pakistan is what keeps me awake at night,” said Dr Kilcullen, who was a specialist adviser for the Bush administration and is now a consultant to the Obama White House.

“Pakistan has 173 million people and 100 nuclear weapons, an army which is bigger than the American army, and the headquarters of al-Qaeda sitting in two-thirds of the country which the Government does not control.”

Compounding that threat, the Pakistani security establishment ignored direction from the elected Government in Islamabad as waves of extremist violence spread across the whole country — not just in the tribal wilds of the Afghan border region.

“We have to face the fact that if Pakistan collapses it will dwarf anything we have seen so far in whatever we’re calling the war on terror now,” Dr Kilcullen told The Age during an interview at his Washington office. Late last month, when US President Barack Obama unveiled his new policy on Afghanistan and Pakistan, he warned that al-Qaeda would fill the vacuum if Afghanistan collapsed, and that the terror group was already rooted in Pakistan, plotting more attacks on the US.

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Posted by & filed under In The News.

Jim Sinclair’s Commentary

You need to maintain a sense of humor under all circumstances. You will have to agree with me that the following article is timely.

SEC Faults Its Handling Of Tips on Short Sales — Too Few Complaints Resolved, Report Says
Zachary A. Goldfarb
Washington Post Staff Writer
Thursday, March 19, 2009; Page D01

"Only 123 of 5,000 naked short-selling tips were forwarded for further investigation, and none led to enforcement, the report said".

The SEC’s enforcement division disagreed with most of the report’s findings.  "There is hardly unanimity in the investment community or financial media on either the prevalence, or the dangers of, ‘naked’ short selling," it wrote.  The division added, "The people closest to the trading, with the deepest u nderstanding of and access to the data, did not see and refer any of the large-scale, damaging ‘naked’ short sale abuse."

Obviously under former SEC Chairman Christopher Cox, illegal naked short selling (FTD’s) was part of generally accepted SEC procedures.  "none led to enforcement"

However, under new leadership the SEC sounds like they may want to send a message to the FTD er’s. Time will tell.

New SEC Chairman Mary Schapiro is working to revamp the agency’s system for collecting tips and pursuing investigations.

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Jim Sinclair’s Commentary

Just in case you have not focused on it, the gross obligations of the US Government in February 09 passed the ENTIRE World GDP. That is fact, but hey, in today’s world it seems who cares, it is only paper. We can always make more and more paper, maybe.

Federal obligations exceed world GDP
Does $65.5 trillion terrify anyone yet?
Posted: February 13, 2009 11:35 pm Eastern
By Jerome R. Corsi
© 2009 WorldNetDaily

As the Obama administration pushes through Congress its $800 billion deficit-spending economic stimulus plan, the American public is largely unaware that the true deficit of the federal government already is measured in trillions of dollars, and in fact its $65.5 trillion in total obligations exceeds the gross domestic product of the world.

The total U.S. obligations, including Social Security and Medicare benefits to be paid in the future, effectively have placed the U.S. government in bankruptcy, even before new continuing social welfare obligation embedded in the massive spending plan are taken into account.

The real 2008 federal budget deficit was $5.1 trillion, not the $455 billion previously reported by the Congressional Budget Office, according to the "2008 Financial Report of the United States Government" as released by the U.S. Department of Treasury.

The difference between the $455 billion "official" budget deficit numbers and the $5.1 trillion budget deficit cited by "2008 Financial Report of the United States Government" is that the official budget deficit is calculated on a cash basis, where all tax receipts, including Social Security tax receipts, are used to pay government liabilities as they occur.

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Jim Sinclair’s Commentary

Please consider the implication to markets and inflation when, not if Pakistan implodes into Taliban hands.

Troops patrol streets in southwest Pakistan
AFP
QUETTA, Pakistan (AFP) — Paramilitary troops patrolled the streets Sunday to deter any violence as the Pakistani city of Quetta came to a standstill for a …
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Pakistan militants torch Afghan supplies
Reuters – USA
PESHAWAR, Pakistan (Reuters) – Taliban militants set fire on Sunday to 10 container trucks carrying supplies to Western forces in Afghanistan in a pre-dawn …
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Baluch militants kill six mine workers in Pakistan
Reuters – USA
By Gul Yousafzai QUETTA, Pakistan (Reuters) – Separatist militants in Pakistan’sBaluchistan province have claimed responsibility for killing six coal-mine …
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