Posted at 8:38 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

First Iceland, then Ukraine, Romania, Lithuania and now Ireland! The UK, France and Italy are not far behind!

Best,
Ciga Big Tatanka

Bailout for Bank of Ireland
Aine Coffey
November 23, 2008

THE Irish government has agreed to take part in a €3 billion (£2 billion) bailout of Bank of Ireland that will be led by private equity. The deal would be the first state aid for an Irish bank.

This week a number of private-equity groups will make proposals to BoI. A condition of the government cash injection will be that new investors are locked in for a set time to ensure they don’t try to sell quickly and make a big profit.

Names already linked with a potential investment include Cardinal Asset Management, an Irish investment firm, Sandler O’Neill, Texas Pacific Group and JC Flowers.

Ireland was one of the first countries to respond to the credit crisis with a guarantee for bank liabilities worth some €440 billion, but until now it has not bailed out or nationalised any banks, and they have not raised equity themselves.

More…

 

Jim,

Gold has held up remarkably well despite the fear and pessimism. Humans tend to fear that which they don’t understand. The enemy of fear is knowledge. If the dollar is indeed headed to 0.52, the USDX to gold ratio has a technical target of at least 0.015. This suggests a gold price north of $1650. Something you have suggested as a possibility more than once.

The public really has no idea.

Regards,
Eric

Posted at 10:40 PM (CST) by & filed under General Editorial.

My Dear Extended Family,

Things are now "Out of Control."

This international financial crisis is now out of control as the world asks if the USA has two presidents, one president or no president at all.

It would appear that Paulson is in financial control with Bernanke as his second.

I warned you by personal email long before the statement was proven totally correct that “This is it.” That was followed by “This is it, and it is now.” Many people laughed it off.

This is it, and it is now.
Now it is out of control.
Now we enter the Collapse of Confidence period.
Then we begin the Weimar Experience.

It has all hit the fan, and still the absolute majority have no clue. The OTC derivative dealers broke the system into millions of pieces of glass. This broken glass cannot be put back together.

It is heart rending to see a picture of GM autoworkers holding a prayer meeting for their retirement funds. The retirement money was never funded. It is a lost hope. This is another responsibility the government has undertaken that is going to go wild.

Those of you still in freeze frame are headed for lines around your bank. Your bank will likely be acquired by another bank that also is in deep trouble.

The US dollar, like a leaderless company, will lose its respect and therefore value.

In order of importance the following MUST be done unless you want to be one of the suffering masses that will be all too visible this winter:

1. You must have your assets held anywhere they are in true custodial-ship accounts. That type of account at a bank or broker states clearly that the assets held there are not on the balance sheet of the host financial entity. Those assets are clearly segregated in your name. This must be reviewed by counsel to be sure you have what you think you have. Don’t cheap out. All you have is depending on the validity of true custodial-ship accounts.

You cannot know all the banks are broke, however I feel ALL banks are broke because finance is an intertwined system that if visible would look like a spider’s web. Problems on the top will materialize all along the web. Therefore the singular most important step you must take is the establishment of a true custodial-ship account.

Do not assume you have this type of account unless a competent attorney reviews the account papers.

2. I am extremely concerned about those of you who persist in holding certificates for gold rather than holding the actual metal either delivered to you or held for you in a true custodial-ship type account. The scams out there in gold are plentiful. The only way to avoid these scams absolutely is to have your gold in your own possession.

Every other means of holding gold is steps away from perfection. Some will be ok, but many will not.

3. Why would anyone fail to either take paper certificates or order their financial agent to make direct registration book entry at the transfer agent? In most cases you only have until year-end to accomplish this strategy.

4. Withdraw from ETFs.

5. If you carelessly keep large assets with your broker you are as mad as a hatter. The FDIC DOES NOT have the money to guarantee all they are undertaking. Withdraw excess money constantly from any net broker. If you are so stubborn that you think you can trade to insure yourself when your funds are not making money while still getting your money that counts you are nuts. Admit to yourself you are nothing more than a gambling addict in a downward spiral.

6. Leave no gold or coins with any coin dealer.

7. If you can withdraw from your corporate retirement plan do it.

8. Withdraw from credit unions.

9. Withdraw from all money market instruments.

10. This is it.

11. It is now.

12. It is out of control NOW.

The next two months are going to be shocking, but nothing compared to what you will have to experience in 2009.

Respectfully yours,
Jim

Posted at 8:25 PM (CST) 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.

More…

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.

More…

Posted at 9:47 PM (CST) by & filed under Trader Dan Norcini.

Dear Friends,

This week’s Commitment of Traders (COT) report gives us the details of the ongoing liquidation occurring at the Comex which has seen open interest drop to a meager 289,700 contracts as of the end of the reporting period from a peak that once reached 593,953 back at the beginning of this year in January. A washout of that magnitude is simply enormous. You would have to go back to June 2006 to see open interest in the gold at these levels.

One way I prefer to look at this is to say that more than 50% of the players who moved towards gold over the last 2 ½ years are gone from the market. What makes this even more interesting however is in June 2006, front month Comex gold was trading close to $585. This past Tuesday, with the open interest at the same level as that last week of June 2006, front month gold was trading at $730, a full $145 higher. Clearly, the rate of short covering that has occurred during this liquidation cycle was at a much higher rate than the rate at which these same shorts were put on. In other words, the shorts were more eager to get out than the longs were which is really saying something when we consider just how much hedge fund deleveraging and index fund redemption related selling has been occurring. When you have reports of unprecedented demand for gold bullion, shortages in the spot market, mints closing down sales, etc., as a short in the paper market, you simply no longer have any ammunition with which to bolster your side of the argument. You realize that you are flirting with the devil since the only thing you have going for you is long liquidation and that in and of itself cannot last indefinitely as even a paper market must eventually align itself with the real fundamental world. That alone is sufficient reason to take your profits quickly and do not tempt your luck. Greed that results in overstaying your welcome in a winning trade has done in many a trader and cut short their career. We saw today what happens to shorts who overstay their welcome in a market in which the fundamentals are pitted solidly against their positions.

Back to the details of the COT report for gold – The fund net long position actually registered a very small increase this week but this is not because of new buying on the part of the trading funds but rather due to a very large amount of short covering on the part of those funds who had decided to attack gold from the short side. They covered 6158 shorts against the liquidation of 5288 longs by their counterparts.

The commercials are more interesting – the bullion banks (the commercial shorts) did very little short covering this week compared to what they have previously been doing. They have been covering more than 10,000 shorts each week for some time now – this week they covered a piddly 801.

Clearly if you want to know who was doing the price capping at the $750 level last Friday, this Monday and this Tuesday- look no further than this group! Unfortunately for them, today they got buried as the buying from panicked short side specs along with new buying overwhelmed their line in the sand at that level. I expected them to try to make a stand at the $770-$780 level but the market ripped through that level without even missing a beat and ran all the way to $800 before the bullion banks could regain their footing.

What is important to note now is that gold has tripped several technical indicators into a “buy” mode and has also taken out several very important technical resistance levels. Things of such nature generally bring in technical based buying and with open interest so low and so many players having pulled out to sit on the sidelines, there is the potential for quite a bit of buying to come into the Comex should these folks decide to play that game again. I am most anxious to see the open interest numbers from today’s session that we will get Monday morning to see what might have transpired today. I do hope that we have seen an end to the drop off in open interest in gold as it is simply not possible to sustain any rallies for long without more new buying coming into the market. Maybe, just maybe, we have reached that point where the dreadful liquidation is over.

In the meantime, do not let down your guard or grow complacent because of a one day victory over the shorts. If you want to see a lot more of this, then continue to acquire the gold from the Comex warehouses by standing for delivery and taking it out of the warehouse. Nothing will unnerve the shorts more quickly and do more to undercut their confidence than to strip them of the metal and force them to come up with more of it to make good on deliveries. “Stand and Deliver or Go Home” should be the rallying cry of the longs to the shorts.

Technically front month Comex gold is now above the 10, 20 and 40 day moving averages. It closed right on the 50 day moving average. Both the 10 day and the 20 day have now turned upwards which will catch the attention of the trading funds. Next week will be both interesting and crucial especially since it is a holiday shortened trading week here in the US and that can bring added volatility as players move to the sidelines for a long vacation. We are also approaching that time of the year in which many traders simply close down their books and take off until the beginning of the New Year. That too brings a drop off in liquidity so there is potential for even more wild swings as we move into December, as if things were not already enough to give one a good case of vertigo.

 

Click here for today’s Commitment Of Traders charts with commentary from Trader Dan Norcini

Posted at 5:56 PM (CST) by & filed under In The News.

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.

More…

 

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)

More…

Posted at 5:45 PM (CST) by & filed under General Editorial.

Dear Friends,

What bank is broke, and what bank is solvent is an impossible question to answer. All we hear are lies, distortions and bailouts. There still has not been a definitive statement about all of this being a product of OTC derivatives.

The key to survival as we have already told you is that you keep your assets in a true custodial-ship anywhere.

Soon you will not be able to direct register or get paper shares for most public companies.

What are most you waiting for? You are at risk to your financial agents. For your sake, get off your butt and do the necessary.

INFALLIBLE INSURANCE ON SALE:

Gold is cheap at $800 per ounce.

Gold is the only viable insurance. The US dollar is not viable insurance because there is simply too much of it and that amount is growing every day. That makes the US dollar untrustworthy.

Gold is the only viable insurance. Clearly equities (with the exception of precious metals shares) are not.

Gold is the only viable insurance. US Treasury bills are not because the yelling at all the rating agencies in Washington today just might get US credit downgraded.

General commodities have been viable, but by nature they are too wild and from now on will be selective until Pakistan implodes and Weimar appears.

Banks cannot offer insurance as they are, in the main, bankrupt.

Insurance companies cannot offer you sound insurance.

Money market funds are not insurance, making gold the only viable insurance.

Retirement programs are no longer insurance.

Jobs are no longer insurance as companies are run by lawyers and accountants.

Equity in your home is not insurance because it simply does not exist.

Your family is no longer insurance because they have the same problems you do.

The assumption your kids will take care of you in your old age is not viable insurance no matter what you think.

Gold has no liability attached to it and is therefore the only viable insurance.

Gold is universally exchangeable, making it the only viable insurance.

Gold has historically performed perfectly in maintaining buying power, making it the only viable insurance.

Gold is the only viable insurance because it is Honest Money.

Since gold is the only viable insurance and because everyone needs it, gold will trade at levels of at least $1200 and $1650.

I could go on but gold is all there is that will protect you from the White Wash being applied by the Fed and Treasury on a structure that is in fact in a free fall.

I am not the least concerned about gold and believe you should not be either as long as you have no margin and understand what gold really is: a currency and an insurance policy. There is no other viable insurance in this most unusual situation.

Gold is a currency that you will see perform as the currency of choice. There is no doubt we are headed into a planetary Weimar experience to some degree.

Dollars are being created faster now than in any other period in history. The Fed and treasury are guaranteeing everything from money market funds to large corporate entities in one way or another.

The first valuation of worthless OTC derivatives via a public sale of these at .0875 to .02 cents shocked anyone with a brain. Now the downturn in business is hitting financial entities and shortly litigation will smoke whatever is left.

The FDIC is already yelling for additional and significant funding from congress as their capital contracts on every Friday’s bailout.

People expect things to return to normal in 2010. That is a fairy tale.

The Fed has only started creating money for bailouts. You saw what happened when they stepped away from Lehman. If you say you didn’t look out the window.

Quantitative Easing by the Fed is the massive creation of funds with no sterilization.

All these bailouts and Federal guarantees on credit items constitute a white wash on a falling economic structure going out of control, and soon.

The out of control point for major planetary dislocation is NOW for the next two months.

Regards,
Jim

Posted at 3:52 PM (CST) 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.

More…

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…

More…

Posted at 3:40 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

Regarding part of this post on hyperinflation it seems quite familiar:

Was Weimar’s Hyperinflation Triggered By An Increased Velocity Of Money Or A General Loss Of Confidence?
Posted: Nov 18 2008 By: Jim Sinclair

***snip***
2 “Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:

– Outright lying in official statistics such as money supply, inflation or reserves.
– Suppression of publication of money supply statistics, or inflation indices.
– Price and wage controls.
– Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or something similar. 
– Adjusting the components of the Consumer price index, to remove those items whose prices are rising the fastest.

None of these actions address the root causes of inflation, and in fact, if discovered, tend to further undermine trust in the currency”
***end snip***

My Observations:

Bullet point one – Over the past years it is a given that the government massages the inflation numbers to suit their interests and pay less than they should on COLAS, etc. This fact is laughed about openly on CNBC. I have also seen numerous changes in how money supply is counted, calculated and presented on the Fed’s books, possibly Monty Guild or some other Fed watcher could document these changes and how they affect the market’s perception of the US dollar. There has been no audit of US gold as has been discussed by many gold people over the years and there have been distinctions made on the Fed’s books about "deep storage gold" and other strange classifications of the "reserve." Ben Bernanke also opined once that the Fed could buy gold mines if they so desired. So in my mind, bullet point one has been going on for some time now – massaging and fibbing over time, and hiding info.

Bullet point two – Well Dr. Greenspan took away the widely followed Money Supply report a few years ago, citing them as not needed anymore and to save the Fed money and time by not calculating the report. Well thanks to the private groups who continue to create these reports (as best as they can as mirrors to the originals) it seems like the money supply numbers are accelerating rapidly higher. Soon Inflation will be a dinner table topic again as it was in the late 70’s, so hiding it by eliminating reports or doctoring the reports will not make much of a difference in the near future.

Bullet point three – Price and Wage controls were tried by Carter and they failed. In an Obama administration I would tend to believe that they may be tried again. We can only wait and see if the same mistakes are made. We know that price controls lead to shortages on the goods that are capped, and artificial wage controls – usually making the employer pay more to his workers than what the market indicates, leading to less profits and in some cases business closures.

Bullet point four – Forced savings schemes–The trial balloon for that has already been released into the internet ether! Taking over 401k plans and IRA’s by the government, a Democrat sponsored idea, where you would receive a rate of return of 3% over the inflation rate (we know this number will be quite modest already) with other stipulations, restrictions, tax gimmicks and the like. Most average people, after they wake up from the market beatings they are now taking will probably go for it! Why not let the government manage the retirement money there is not much left anyway? And now we see that there is a cry for Obama Bonds!

We are well on our way towards dollar collapse and full blown runaway inflation. Looking at Trader Dan’s charts today regarding the fed balance sheet practically blows my mind – an ocean of dollars swamping the ship of State.

I noticed today that the 3 month bill is paying 0% interest! I also remember watching an exchange of viewpoints a long time back on a financial program about gold. One man said that gold is not a good investment since it pays no interest. The other man quickly replied that gold didn’t have to because it’s real money. Well paper money isn’t paying much these days and is going down in value since its supply is growing, the last thing you want is a drink of water when you are drowning. The lifeboats left are few, as some have already been lowered away.

CIGA Ken

Hello Jim,

Very good analysis in your article"30 Reasons For The 2nd Great Depression."

I might add this is the fourth long-term down cycle since 1860, and it’s not over yet.

CIGA Eric

Click chart to enlarge in PDF format

November2108-Eric