Posts Categorized: In The News

Posted by & filed under In The News.

Dear CIGAs,

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

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

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

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

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

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

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

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

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Jim Sinclair’s Commentary

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

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

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

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

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

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

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

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Jim Sinclair’s Commentary

This is the definition of out of control.

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

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

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

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

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

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

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

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Jim Sinclair’s Commentary

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

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

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

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

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

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

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

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Jim Sinclair’s Commentary

It is out of control.

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

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

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

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

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

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

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

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

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

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Posted by & filed under In The News.

Dear Friends,

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

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

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

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

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

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

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

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Jim Sinclair’s Commentary

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

There is no better equation for a global Weimar

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

Jim Sinclair’s Commentary

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

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

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

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

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

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

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

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

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Jim Sinclair’s Commentary

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

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

The following is an excerpt from the Wall Street Journal:

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

Jim Sinclair’s Commentary

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

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

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

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

Click chart for more…

Bailout

Jim Sinclair’s Commentary

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

Mint suspends orders amid rush to buy bullion
The Australian

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

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

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

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

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

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Jim Sinclair’s Commentary

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

Polish watchdog asks prosecutor to probe late share deal

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

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

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

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Posted by & filed under In The News.

Jim Sinclair’s Commentary

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

Jim Sinclair’s Commentary

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

Japan economists call for ‘Obama bonds’
By Kosuke Takahashi

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

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

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

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

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Jim Sinclair’s Commentary

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

It cannot be averted.

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

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

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

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

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

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

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

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

America’s Mark-to-Model Banking System

Oct 2nd 2008

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

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

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

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

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

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

level-1-2-34

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

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

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

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

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

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

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

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

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

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

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Jim Sinclair’s Commentary

The question is how many hedge funds will fail.

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

Hedge funds brace for D-Day
November 14, 2008

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

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

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

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

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

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

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Jim Sinclair’s Commentary

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

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

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

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

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

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

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Jim Sinclair’s Commentary

Standard much ado about nothing.

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

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

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

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

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

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

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Jim Sinclair’s Commentary

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

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

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

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

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

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

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

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Posted by & filed under In The News.

Gold May Spike to $2000 in Medium Term

Gold can easily go up to $1500-$2000 in the medium-term, says Johann Santer, MD at Superfund Financial Hong Kong. As such, he tells CNBC’s Martin Soong that gold at $710 is a good entry point.

Click here to view video…

Jim Sinclair’s Commentary

G20:

President Bush says that TRANSPARENCY is very important.

Will the Federal Reserve yield the secret details of the two trillion dollar bailout?

Health Care:

More than 90 percent of reasonably sized cities and towns in the USA would be insolvent if they were required to put up the cost of their commitment to provide health care for retired employees. TRANSPARENCY anyone?

Jim Sinclair’s Commentary

If they are making applications to the Fed it says loud and clear:

1. They cannot finance in the commercial paper market.

2. They are in trouble to some degree.

3. The commercial paper market still stinks and Lie-bor does not reflect much.

Textron, AEP Ask for Access to Commercial-Paper Fund (Update1)
By Robert Schmidt and Bryan Keogh

Nov. 14 (Bloomberg) — A group of companies including Textron Inc., Nissan Motor Co. and American Electric Power Co. is pressing the Federal Reserve to expand purchases of commercial paper to include them.

The coalition wants the Fed to go beyond top-rated paper and buy debt with the second-highest grade, two people said on condition of anonymity. American Electric Chief Financial Officer Holly Koeppel said the group is seeking to add more companies and preparing a letter to outline its case.

While accepting lower-grade debt could reduce borrowing costs for a broader group of companies, it would also expose the taxpayer to greater risk. The request is one of a number of attempts to get a share of federal rescues, with industries from automakers to heating-oil retailers seeking funds.

“We are really creating a mindset where no one fails,” said Adolfo Laurenti, a senior economist at Mesirow Financial Inc. in Chicago.

Second-tier issuers of commercial paper, debt that matures in nine months or less and is a form of IOU for day-to-day expenses such as payrolls and rent, argue they’re disadvantaged by the Fed’s new Commercial Paper Funding Facility.

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Jim Sinclair’s Commentary

Sounds reasonable to me.

Iran switches reserves to gold: report
Sat Nov 15, 2008 3:14am EST

TEHRAN (Reuters) – Iran has converted financial reserves into gold to avoid future problems, an adviser to President Mahmoud Ahmadinejad said in comments published on Saturday, after the price of oil fell more than 60 percent from a peak in July.

Iran, the world’s fourth-largest oil producer, is under U.N. and U.S. sanctions over its disputed nuclear programme and is now also facing declining revenue from its oil exports after crude prices tumbled.

"With the plans of the presidency…the country’s money reserves were changed into gold so that we wouldn’t be faced with many problems in the future," presidential adviser Mojtaba Samareh-Hashemi was quoted as saying by business daily Poul.

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Posted by & filed under In The News.

A note to our Russian Readers:

You have an exceptional opportunity to stop the decline in the value of the Ruble and elevate it to a reserve currency through the following conversion opportunities:

1.Partial convertibility in gold at $1035.
2.Partial convertibility in crude oil at $147 per barrel.
3.Partial convertibility into a basket of crude and gold.
4.A full convertibility of the above.
5.A form of the Federal Reserve Gold Certificate Ratio that I have written about many times.
6.Same as above with all new sovereign bond issues.

All of this is much more effective than the failed attempts to stabilize.

When a currency has a convertibility aspect to it, conversion almost never occurs.

Jim Sinclair’s Commentary

This scholarly missive written by a fellow who truly understands speaking the language of the initiated presents the non conversion of Monetary Base into M2.

That may be another reason that the US Treasury and the Fed have moved to QS. If QS in fact does pump money directly to those most apt to spend it, converting Monetary Base into M2 and accelerating it, then watch inflation roar as business decelerates to the downside to some degree. Of course there will be things like putting GE’s financing under a FDIC guarantee. Does anyone put their funds into the GE Bank & Trust? There isn’t one so what is the FDIC doing guaranteeing debt with its quickly deteriorating balance sheet and for how much is the guarantee per $1000 bond? I suspect they are 100% guaranteed.

Don’t forget one of the tools of attempted repair inthe1930s was an increase in the price of gold to offset the deflationary thinking and create more money for stimulation methods that unfortunately failed.

QS might work to some degree and that may be why US equities did a key reversal today.

Technical Factors

Perhaps the most important driver of the US dollars recent appreciation is not a fundamental but a technical factor. The meltdown of prices in the commodity complex, particularly energy, has generated a very strong impulse for US dollar strength. Whilst many commodity end-users were outright cash buyers, other buyers that were investing or speculating in commodities as a newfound asset class over the past five years would typically fund their position with US dollar-denominated credit, in effect, creating a US dollar short position. Now that these commodity carry trades are being unwound, it exacerbates commodity weakness and contributes to US dollar strength. In addition, US investments in foreign markets, particularly equities, were primarily un-hedged and large amounts of those monies are now being repatriated which holds similar bullish US dollar effects.

Dollar Strength Sustainability
How sustainable are these four fundamental and technical factors in underpinning US dollar strength?

The trade and current account deficits should continue to narrow for several more months or perhaps quarters. As the US economy falls deeper into recession, imports should begin to decline more precipitously due to declining volume. This collapse along with rising export receipts will narrow the trade deficit and continue to lend support to the US dollar.

Despite the US dollar supportive narrowing of the trade and current account deficit, the pace of improvement may begin to slow for several reasons. First, once the prices of energy and other commodities stabilize, trends in import prices will no longer help lower overall import expenditures. Furthermore, stabilized import prices will also stop contributing to improved terms-of-trade. Second, it seems that a synchronized global recession is on the horizon. If so, then exports will once again decelerate despite US dollar competitiveness. As the growth of economies representing our important export markets slows or even falls into recession, weaker export growth will result. The combined effect of these counter-veiling trends is that the incipient narrowing of the US trade deficit may be short lived.

Perhaps the key factor will be the length of the time it takes for global de-leveraging to run its course. No one knows precisely how long it will take for investors and speculators to unwind US dollar-denominated commodity and other carry trades. It could be one month or half a year. However, once complete, the strongest driver for recent US dollar strength de-leveraging — will dissipate. At that juncture, FX traders and investors will once again re-focus their attention on the supply of US dollars being pumped into the US economy and on the global system and investors willingness to hold additional Greenbacks in their portfolio.

The weight of US dollar supply
It is beyond the scope of this paper to itemize the growing cumulative costs of the various aspects of the bailout. Suffice to say that the supply of US dollars is dramatically growing and measured in the trillions. To best measure this aggregate growth, lets look at the growth of the Feds balance sheet and the monetary base.

After remaining relatively stable for more than a year through August 2008 at around $825 billion, the monetary base has exponentially exploded. BCA has recently highlighted that in the past eight weeks, the monetary base has grown 38% to $1.142 trillion, and shows no signs of slowing down.1 Yet these reserves injected onto the balance sheets of the banks have not been disseminated into the broader economy. This is apparent by the ratio of M2 to base money, which over the same time period since end August, has plummeted from 9.1 to 7.8 (see Charts 1 & 2). This is not surprising since most of the capital injected into banks has been used to repair and shrink the balance sheet (i.e., write-off bad assets) rather than expand it. So fractional bankings normal stimulatory impact through the money multiplier has by-in-large not been activated.

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Jim Sinclair’s Commentary

The paper market for gold will NOT be able to hold back this type of demand, but will try as long as their warehouse remains capable of supporting their devious destructive machinations to pick your pocket in order to fill theirs. For your information, my wife and I were members of the Comex.

I respectfully ask you to take delivery of your positions as you can afford to. Why pay wild premiums to buy gold when you can buy a nearby gold future at no premium and take delivery?

Gold rush
Benjamin Scent
Friday, November 14, 2008

The mainland is seriously considering a plan to diversify more of its massive foreign-exchange reserves into gold, a person familiar with the situation told The Standard.

Beijing is considering changing its asset allocations during the financial tsunami in order to build up gold reserves "in a big way," the source said.

China’s fears about the long-term viability of parking most of its reserves in US government bonds were triggered by Treasury Secretary Henry Paulson’s US$700 billion (HK$5.46 trillion) bailout plan, which may make the US budget deficit balloon to well over US$1 trillion this fiscal year.

The US government will fund the bailout by printing new money or issuing huge amounts of new debt, either of which will put severe pressure on the value of the greenback and on government bond yields.

The United States holds 8,133.5 tonnes of gold reserves valued at US$188.23 billion. China holds gold reserves of just 600 tonnes, worth only US$13.89 billion.

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Jim Sinclair’s Commentary

This alone creates at least a very strange situation that the legislative now wants to see. Can you imagine what the Obama Administration will do to get both the Fed and the USA Treasury to come clean?

I would suggest that both the Fed and the Treasury have no hope of hiding the facts in a short period of time.

A word of advice to those presently concerned by the lack of oversight:

The matter might be good to face up to while the Bush Administration can still issue Presidential pardons.

Bailout Lacks Oversight Despite Billions Pledged
Watchdog Panel Is Empty; Report Is Unfinished
By Amit R. Paley
Washington Post Staff Writer
Thursday, November 13, 2008; A01

In the six weeks since lawmakers approved the Treasury’s massive bailout of financial firms, the government has poured money into the country’s largest banks, recruited smaller banks into the program and repeatedly widened its scope to cover yet other types of businesses, from insurers to consumer lenders.

Along the way, the Bush administration has committed $290 billion of the $700 billion rescue package.

Yet for all this activity, no formal action has been taken to fill the independent oversight posts established by Congress when it approved the bailout to prevent corruption and government waste. Nor has the first monitoring report required by lawmakers been completed, though the initial deadline has passed.

"It’s a mess," said Eric M. Thorson, the Treasury Department’s inspector general, who has been working to oversee the bailout program until the newly created position of special inspector general is filled. "I don’t think anyone understands right now how we’re going to do proper oversight of this thing."

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Jim Sinclair’s Commentary

The French just figured this out. No, it is a statement to the USA to stop trying to run things at this type of gather.

Sarkozy-US dollar no longer only currency in world

11.13.08, 06:49 AM EST

PARIS, Nov 13 (Reuters) – The U.S. dollar can no longer claim to be the only currency in the world, French President Nicolas Sarkozy said on Thursday ahead of a Washington meeting of G20 leaders to discuss the international financial system.

‘I am leaving tomorrow for Washington to explain that the dollar cannot claim to be the only currency in the world…, that what was true in 1945 can no longer be true today,’ he said at a prizegiving ceremony.

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Jim Sinclair’s Commentary

Beggars never stop begging. This is all about OTC derivatives and most certainly not the false flag of mortgages. The OTC derivatives broke them and caused this total disaster rather than a simple recession.

Freddie seeks gov’t aid after $25.3B loss
Friday November 14, 2:38 pm ET
By Alan Zibel, AP Real Estate Writer

Freddie Mac seeking $13.8B in government aid after posting 3rd-quarter loss of $25.3 billion

WASHINGTON – Freddie Mac is asking for an initial injection of $13.8 billion in government aid after posting a massive quarterly loss Friday.

The mortgage finance company is making the first request to tap the $200 billion promised by the Treasury Department to keep it and sibling company Fannie Mae afloat after the two were seized by federal regulators in September. Freddie Mac said it expects to receive the money by Nov. 29.

The McLean, Va.-based company posted a loss of $25.3 billion, or $19.44 per share, for the third quarter. The results compare with a loss of $1.2 billion, or $2.07 a share, in the year-ago period.

Analysts were divided about whether Fannie and Freddie’s losses would ultimately exceed the government’s $200 billion pledge. And that may partly depend on the extent to which Fannie and Freddie are used by the government as a tool to ease the foreclosure crisis.

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Posted by & filed under In The News.

Dear Friends,

Pressure is picking up in the demand for the Fed to outline what they have done with the trillions put into play and to disclose what their inventory of "assets" is. It is very bad for the Fed to refuse. Cooperation might actually cause a major embarrassment to the US dollar, and soon.

Respectfully,
Jim

 

Jim Sinclair’s Commentary

If I was anyone involved in these distributions that might have even the smallest possibility of being a crime, I would fess up, get sentenced, and be pardoned by the outgoing Administration. That should be basic logic on the subject of “saving your ass.” “The Democrats are coming, the Democrats are coming – run for your money.” Sorry, I mean life.

Washington’s $5 Trillion Tab
Elizabeth Moyer, 11.12.08, 05:15 PM EST

Fighting the financial crisis has put the U.S. on the hook for some $5 trillion a report says. So far.

For all the fury over Treasury Secretary Henry Paulson’s $700 billion emergency economic relief fund, it seems downright puny when compared to the running total of the government’s response to the credit crisis.

According to CreditSights, a research firm in New York and London, the U.S. government has put itself on the hook for some $5 trillion, so far, in an attempt to arrest a collapse of the financial system.

The estimate includes many of the various solutions cooked up by Paulson and his counterparts Ben Bernanke at the Federal Reserve and Sheila Bair at the Federal Deposit Insurance Corp., as the credit crisis continues to plague banks and the broader markets.

The Fed has taken on much of that total, including lending a cumulative $1 trillion in overnight or short-term loans since March to primary dealers through its emergency discount window and making a cumulative $1.8 trillion available through its term auction facility, a series of short-term transactions it began making available twice a month in January. It should be noted that a portion of the funds lent in these programs has been repaid and that the totals represent what has been made available.

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