Posted at 11:05 PM (CST) by & filed under General Editorial.

Dear Mr. Saab,

I apologize for any slight you might have felt from the brief response by our reporter, Vito Racanelli, to your thoughtful letter of April 30. We do value our readers and their opinions. In fact, over my long career at Barron’s, I have seen many articles generated by an idea, question or doubt posed by one of our readers.

As to your specific complaint, that the "All That Glitters" story was inaccurate and unfair, we feel that it was an honest piece, based on several weeks of research and input from numerous sources, both pro and con. Obviously, who is correct will be determined by the merciless test of time. As you probably know, we revisit stories periodically and disclose whether we were right or wrong. We eventually will return to this one, too.

Reasonable people certainly can disagree, as you and Mr.. Racanelli do about the prospects of Tanzanian Royalty Exploration. Thanks for your input.

Regards,

Richard Rescigno
Managing Editor
Barron’s

 

Dear Richard,

Thank you so much for your polite and timely response. The world is filled with people that have different ideas about what is right and what is wrong. As an editor, your challenge is to make sure that the facts underlying your articles are correct and not suspect particularly for a newspaper/magazine of your reputed caliber.

On my behalf, I must say that I am more comfortable with the market’s recent assessment of Tanzanian Royalty Exploration (TRE). Following your story of April 13, 2009 TRE stock careened down to a low of $2.73 from a previous close of $4.05 on April 9th. The short position which was at an all time high on the day the story was published reached a higher peak slightly above 4,000,000 shares – double the norm.

While I appreciate your response on May 28th, you have not addressed or acknowledged the misinformation in your article that I had so clearly addressed. Allow me to indulge myself for a minute as I add to my thoughtful letter of April 30th so that the gross inaccuracies and misrepresentations of your article are not left unhealed.

1) Stockholder breakdown… Your article states that 83% of TRE shareholders are American. If you check your facts, you will find 83% of registered shareholders are Americans but they represent less than 20% of the company’s total shareholders! Registered shareholders have obtained their shares in Certificate form or are directly registered with the Transfer Agent. The correct figures are 43% of the company’s stockholders are from the U.S. and 57% are Canadian or other. Could it be that the several weeks of research and input to Barron’s editorial staff must have been from the wrong sources?

2) Accounting issues… Your publication and its big brother The Wall Street Journal have railed against the onerous provisions of Sarbanes Oxley, which were designed for mega corporations and have done little to stop the inordinate levels of abuses revealed in the last two years! Yet you pick on a statement on page 15 of the TRE Annual Report that states "we have limited accounting personnel with expertise in generally accepted accounting principles to enable effective segregation of duties over the transaction process with respect to financial reporting of matters and internal controls over financial reporting". You fail to state that it is management that has openly come out with this statement which is a direct consequence of Sarbanes Oxley. The CFO in Toronto is a CPA and there is a CPA equivalent at TRE’s exploration office in Tanzania. Out of a total of 53 employees, six are full time on the accounting process. I would challenge the Dow Jones group to have that kind of ratio! Meanwhile, note that KPMG, a world class auditor, has given their approval on page 17. Furthermore this a Canadian company attempting to satisfy both Canadian and U.S. requirements which is quite a challenge for a company of this size!

There are many more examples of failure to fact checking massaged into innuendo that constitutes an article with the intention to destroy, not inform.

For the short interest to rise and peak with the article would suggest that the people who informed Mr. Racanelli took good advantage of him, of you and of Barrons.

Richard, I could go on and on. The facts that I have presented on April 30th and the few that I present today speak for themselves. If they are investigated in a true journalistic fashion (in the old tradition of Barron’s faithful style), they truly put into question the value and integrity of your publication. At first glance, it appears you have been the unconscious victim of a "short play". As the editor you will come to your senses quickly and revisit this story with the real unaltered truth on a front page story. I can just see the headline "Tanzanian Royalty Exploration proves Barron’s wrong", with a sub-headline "The greatest company growth story based on a return to traditional mining… Jim Sinclair does it again!"

The objective of a truly world class financial publication should be to present facts with basis so that opinions may be formed correctly and decisions taken correctly on behalf of your readers.

Thank you again for your attention.

Faithfully Yours,
SS

Posted at 3:30 PM (CST) by & filed under In The News.

Dear CIGAs,

I don’t often ask you to review two postings. Today I have to.

Who knows best what Communism looks like than former and maybe present Communists?

Secondly, the letter posted yesterday written by Andrew Cuomo, AG of New York State, is revealing of the calibre of financial leadership we have. Today is the day the US officially enters into a Communist state, if not by edict then certainly in practice.

God help us all!

American capitalism gone with a whimper
Stanislav Mishin
From PRAVDA.ru June 1, 2009

It must be said, that like the breaking of a great dam, the American decent into Marxism is happening with breath taking speed, against the back drop of a passive, hapless sheeple, excuse me dear reader, I meant people.

True, the situation has been well prepared on and off for the past century, especially the past twenty years. The initial testing grounds was conducted upon our Holy Russia and a bloody test it was. But we Russians would not just roll over and give up our freedoms and our souls, no matter how much money Wall Street poured into the fists of the Marxists.

Those lessons were taken and used to properly prepare the American populace for the surrender of their freedoms and souls, to the whims of their elites and betters.

First, the population was dumbed down through a politicized and substandard education system based on pop culture, rather then the classics. Americans know more about their favorite TV dramas then the drama in DC that directly affects their lives. They care more for their "right" to choke down a McDonalds burger or a BurgerKing burger than for their constitutional rights. Then they turn around and lecture us about our rights and about our "democracy". Pride blind the foolish.

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Jim Sinclair’s Commentary

The key point to China’s increase in gold holdings is that the world was informed not over six years, but practically speaking, in one day.

What does that mean for the dollar when young Chinese students are smart enough, if not a tad rude, to laugh when the Secretary of the US Treasury informs them that the dollar is safe?

Why is China Buying Gold?
Jun 1st, 2009 | By Byron King

Remember the old expression, “I wouldn’t do that for all the tea in China.” People used to associate China with tea. Well, now it’s time to associate China with gold, and a lot of it. Because the Chinese recently announced that they control over 33.89 million ounces of gold for monetary purposes. That’s an increase of 75% in Chinese gold holdings over the past six years.

This kiloton of Chinese gold makes the Middle Kingdom the world’s sixth largest holder of the yellow metal. The U.S. — courtesy of President Roosevelt’s gold confiscation in 1933 – tops this list of the world’s largest gold holders, followed by Germany, the IMF, France and Italy.

How did the Chinese accumulate so much gold? China purchased it over the past six years through its State Administration of Foreign Exchange (SAFE). SAFE is quite distinct from the People’s Bank of China (PBOC). The SAFE purchases meant that the gold did not appear as part of China’s officially reported monetary reserve figures.

The Chinese gold purchases, evidently, were part of a slow and steady buying program between 2003 and the present. It makes you wonder what the Chinese were thinking back in 2003. I happen to know, courtesy of an acquaintance at the Naval War College, that the Chinese were quietly forecasting that the U.S. would destroy its dollar by going to war in Iraq.

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Jim Sinclair’s Commentary

Factor the following in to the absolute truth that if when GM and Chrysler come out of bankruptcy, post 60 day car sales MUST BE RISING or the s**t will hit the fan big time for whatever is then left of the US dollar.

Subprime meltdown over; now comes the bad news

So much has been made of the subprime mortgage meltdown that you would think it was almost totally responsible for the economic collapse, and that once the subprime problem was fixed then the worst would be over.

Unfortunately nothing could be further from the truth, despite hitting new highs in foreclosure listing. Instead it was the first round of a three part collapse, and we are on the edge of the second round.

I will demonstrate with a fantastic series of charts below, most of them were created by the T2 Partners.

Round One

First, let’s take a look at the subprime and overall housing market.

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As you can see, the huge wave of subprime mortgages resettings from "teaser" rates to market rates has virtually ended.

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Jim Sinclair’s Commentary

Northwestern Mutual is generally known as a responsible company. No doubt like other insurers it probably lost a fair amount on dodgy fixed income in the past few years.

Note his comment on downside potential in stocks vs. gold.

Northwestern Mutual Makes First Gold Buy in 152 Years
By Andrew Frye

June 1 (Bloomberg) — Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer by 2008 sales, has bought gold for the first time in 152 years to hedge against further asset declines.

“Gold just seems to make sense; it’s a store of value,” Chief Executive Officer Edward Zore said in an interview following his comments at a conference hosted by Standard & Poor’s in Brooklyn. “In the Depression, gold did very, very well.”

Northwestern Mutual has accumulated about $400 million in gold, and Zore said the price could double or even rise fivefold if the economy continues to weaken. Gold gained 10 percent last month, the most since November. The commodity has more than tripled since 2000, rising for eight straight years. Gold futures for August delivery slipped 30 cents to $980 at 11:47 a.m. in New York.

“The downside risk is limited, but the upside is large,” Zore said. “We have stocks in our portfolio that lost 95 percent.” Gold “is not going down to $90.”

Policyholder owned Northwestern Mutual, based in Milwaukee, ranks thirds by 2008 life insurance premiums according to data from the National Association of Insurance Commissioners. The data excludes annuities.

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Jim Sinclair’s Commentary

Today investors have rewarded failure by goosing equities over 200 points. Bankruptcy is failure no matter how it is spun. The new means of bankruptcy in screwing the bond holders therefore has to be considered as having punished production.

There has never been nor ever will be a society that can survive in leadership with that approach.

The entire mass of money bunny glee assumes that car sales will be no less than holding the 10,000,000 level after bankruptcy.

I am sure all government buying of vehicles will take place the month after GM and Chrysler come out of bankruptcy.

If car buying craters after that, as President Obama said today – what is good for GM is good for the USA. The other side of that is what kills the Second Coming of GM and Chrysler will tank the US dollar as the common share of the USA.

This is going to be a cold, hard winter.

U.S. Auto Sales Likely Tumbled 35% on Chrysler, Jobs (Update1)
By Alex Ortolani and Doron Levin

June 1 (Bloomberg) — Chrysler LLC, idling plants and shutting dealerships in bankruptcy, probably helped shrink the U.S. auto market by 35 percent in May as the industry endured its worst start to a year since at least 1976.

The seasonally adjusted sales rate tumbled to 9.2 million last month from 14.2 million a year earlier, based on 7 analysts surveyed by Bloomberg. Chrysler may have fallen 51 percent and General Motors Corp., which filed for bankruptcy today, may have fallen 37 percent, according to 5 analysts.

May sales at that rate would mark a fifth straight month at fewer than 10 million units, the deepest slump in 33 years of Bloomberg data. U.S. joblessness at the highest since 1983, Chrysler’s Chapter 11 case and GM’s slide toward court protection all likely helped keep buyers out of showrooms.

“It’s still a rough road out there,” said Jeff Schuster, an automotive sales analyst with J.D. Power & Associates in Troy, Michigan. “There’re still a lot of issues with the economy and a lot of uncertainty in consumers’ minds.”

GM, the biggest U.S. automaker, and No. 3 Chrysler began receiving emergency federal loans in December while they worked to restructure outside of court.

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Jim Sinclair’s Commentary

Even the kids in China understand the future of the US dollar.

Geithner gets laughed at by Chinese students when saying $ assets are safe
June 1, 2009
Tom Bawden

Geithner tells China its dollar assets are safe

Mr Geithner, in China on his first visit as US Treasury Secretary, reiterated that US would cut its huge fiscal deficits

Timothy Geithner moved today to reassure the Chinese Government that its huge holdings of dollar assets were safe as he reaffirmed his faith in a strong US currency.

Mr Geithner, in China on his first visit as US Treasury Secretary, sought to allay concerns that Washington’s growing budget deficit would fan inflation which, in turn, would undermine the dollar and US bonds.

“Chinese assets are very safe,” Mr Geithner said, answering a question after his opening address at Peking University this morning.

His answer was greeted with laughter by the students, who question the wisdom of China spending huge amounts of money on US bonds instead of improving domestic living standards.

China is the biggest foreign owner of US Treasury bonds, holding $768 billion (£468 billion) at the end of March.

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Jim Sinclair’s Commentary

Just because they busted their bank with unregulated paper isn’t a good enough reason for regulation of their affairs in their opinion.

Even in Crisis, Banks Dig In for Fight Against Rules
By GRETCHEN MORGENSON and DON VAN NATTA Jr.
June 1, 2009

As the financial crisis entered one of its darkest phases in October, a handful of the nation’s largest banks began holding daily telephone sessions. Murmurs were already emanating from Washington about the need for a wide-ranging regulatory overhaul, and Wall Street executives girded for a fight.

Atop the agenda during their calls: how to counter an expected attempt to rein in credit-default swaps and other derivatives — the sophisticated and profitable financial instruments that were intended to limit risk but instead had helped take the economy to the brink of disaster.

The nine biggest participants in the derivatives market — including JPMorgan Chase, Goldman Sachs, Citigroup and Bank of America — created a lobbying organization, the CDS Dealers Consortium, on Nov. 13, a month after five of its members accepted federal bailout money.

To oversee the consortium’s push, lobbying records show, the banks hired a longtime Washington power broker who previously helped fend off derivatives regulation: Edward J. Rosen, a partner at the law firm Cleary Gottlieb Steen & Hamilton. A confidential memo Mr. Rosen drafted and shared with the Treasury Department and leaders on Capitol Hill has, politicians and market participants say, played a pivotal role in shaping the debate over derivatives regulation.

Today, just as the bankers anticipated, a battle over derivatives has been joined, in what promises to be a replay of a confrontation in Washington that Wall Street won a decade ago. Since then, derivatives trading has become one of the most profitable businesses for the nation’s big banks.

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Jim Sinclair’s Commentary

It is comforting to know that time tested experience honed in the running of major enterprise is the qualified hand that now molds the USA’s business future as a nation.

Any guess at his fraternity association at Yale?

The 31-Year-Old in Charge of Dismantling G.M.
By DAVID E. SANGER
Published: May 31, 2009

WASHINGTON — It is not every 31-year-old who, in a first government job, finds himself dismantling General Motors and rewriting the rules of American capitalism.

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But that, in short, is the job description for Brian Deese, a not-quite graduate of Yale Law School who had never set foot in an automotive assembly plant until he took on his nearly unseen role in remaking the American automotive industry.

Nor, for that matter, had he given much thought to what ailed an industry that had been in decline ever since he was born. A bit laconic and looking every bit the just-out-of-graduate-school student adjusting to life in the West Wing — “he’s got this beard that appears and disappears,” says Steven Rattner, one of the leaders of President Obama’s automotive task force — Mr. Deese was thrown into the auto industry’s maelstrom as soon the election-night parties ended.

“There was a time between Nov. 4 and mid-February when I was the only full-time member of the auto task force,” Mr. Deese, a special assistant to the president for economic policy, acknowledged recently as he hurried between his desk at the White House and the Treasury building next door. “It was a little scary.”

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Jim Sinclair’s Commentary

A never ending story. Remember the Russian experience here and what it did to the USSR?

17,000 US troops in Afghanistan by mid-July
Sun, 31 May 2009 20:39:35 GMT

The bulk of the extra 17,000 US troops will be deployed in Afghanistan by mid-July as Washington strives to tighten its grip on the region.

"10,000 marines are beginning to arrive now and will continue to arrive for the next month and a half or so and they will be principally located in Helmand but also in Farah," Colonel Greg Julian, spokesman for US forces told Reuters on Sunday.

He added that some 7,000 US army troops along with "additional helicopters" will also be deployed to the mainly "rural areas" of southern Kandahar province by the set date.

Julian said that a further 4,000 troops will also be sent to the south and west of the war-torn country by August, mainly to train Afghan security forces.

Despite the growing presence of foreign troops in the southern Helmand province and the western Farah district, the area is considered as a haven for insurgents, where many NATO alliance troops deployed in the country, have met their deaths.

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Jim Sinclair’s Commentary

Destabilization? There are 2,500,000 Pakistanis homeless and on the march. What do you call that?

Pakistan ‘fears destabilizing’ US policies
Fri, 29 May 2009 07:09:53 GMT

The Islamabad government is worried that the US President Barack Obama’s move to boost its military presence in Afghanistan could further destabilize Pakistan.

Pakistan’s Dawn News revealed on Friday that Civilians and military officials in Islamabad believe that an increase of 21,000 US troops in Afghanistan could further destabilize Pakistan by pushing more militants across the border.

Sources said increased US military activity may also spark an influx of refugees from insurgency-hit southern Afghanistan into border areas of Pakistan.

Meanwhile, US Central Command chief Gen David Petraeus paid a secret visit to Islamabad during this week to allay Pakistan’s concerns that the troops build-up in the war-ravaged Afghanistan would add to its woes, according to the report.

"Gen Petraeus told his interlocutors that the US had very few options other than to increase the number of troops in Afghanistan and that all possible efforts would be made to minimize its fallout on Pakistan," a diplomatic source told Dawn.

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Posted at 2:20 PM (CST) by & filed under Jim's Mailbox.

Jim,

As you have said countless times, this is it and it is NOW!

Replace Dates Country and Dollars with Now, the USA and Alf’s numbers!

CIGA "The Gordon"

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Dear Gordon,

Now there is an example of a currency event causing hyperinflation. Note when it happens, it explodes.

Regards,
Jim

Jim,

In determining the path to hyperinflation I come to a stopping point at the wage-price spiral. If the past few months have shown us anything, it’s that the average working-class American lacks the backbone to make a stand again corporate fascism. Hyperinflation requires wage increases so the consumer can still afford goods. In Weimar Germany, the labor unions were apparently quite powerful, which facilitated the process. In the present-day US, other than UAW and a couple of others, the labor class is nearly powerless in the economic process. There is a shortage of good jobs in the real economy and thus workers will be beggars and they will have little bargaining power.

In your model how will higher commodity prices and a Treasury bond selloff translate into higher wages in this economy under such conditions to initiate a wage-price spiral when the workers have such little power these days?

All the best,
CIGA Subir

Dear Subir,

Let us assume the US dollar goes into a free fall whereby groceries are rising in price by 20% per week. Nobody is going to work five days for what will only buy them a half day’s worth of food.

Your thoughts are driven by the assumption that hyperinflation is a demand pull or cost (wage push) type of inflation when it is not.

Hyperinflation has always been and will always be a product of prices escalating as a result of a currency falling in value rapidly.

Currency Hedge Funds internationally utilizing enormous leverage as short sellers will bring hyperinflation to the USA, not unions.

October/November of 2009 will give the US its first taste of hyperinflation since the collapse of the Confederate Dollar hit the South or from the collapse of the US Continental for the Colonial hinterland citizens still holding them.

Respectfully yours,
Jim

Dear Jim,

As your views on the economy, gold, Pakistan and just about everything else have been stellar, I have a lot of respect for your opinions.

If you would, can you please elaborate on ‘Israel’s Miscalculation", and if possible opine on the better alternative??

Thank you,
CIGA Ed

CIGA Ed,

A lot of Iran’s words are right now a bluff, but Israel cannot take the chance that it is either a bluff or will not eventually be true.

The potential for Israel, now unilaterally, to act in the extreme is high.

You do not practice full out unless you anticipate a need for it soon.

To demand, under penalty of law that every citizen seek a bomb shelter in practice is quite out of the ordinary.

Let’s pray Pakistan is not in Taliban hands at that time. The surge in Pakistan is much to do about nothing in terms of sustainability, the key element in containing the Taliban.

Jim

Posted at 2:00 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Once again the big news in today’s trading is the action in the Dollar and the US bond market. The carnage continues in the bond market with prices absolutely in free fall as support levels from Friday’s session were obliterated as wave after wave of selling flooded into the pits. Watching this debacle unfold in front of us, I cannot help to shudder at the effect these soaring interest rates are going to have on all those supposed “green shoots” that are sprouting up. To me it looks like a case of Round Up being sprayed on all of them. After all, what exactly are consumers supposed to think when they see prices of tangibles shooting higher (gasoline, food, hardware, etc.) while interest rates on loans of any kind are moving higher at the exact same time? Just how can rising interest rates in an environment in which so many are either unemployed or underemployed be beneficial to any recovery? Maybe all those folks associated with the struggling auto industry in some form, shape or fashion will rush out and immediately buy new houses or new plasma TV’s to lock in some nice “LOW” rates before they go even higher… Don’t hold your breath waiting for that to occur.

Against this backdrop, crude oil is moving ever so slowly closer to $70 barrel, with unleaded gasoline over $1.90 at the wholesale level over at Nymex. Wheat is closing in on $7.00 bushel while soybeans just topped the $12.00 mark. Platinum is over $1200. Even lumber managed to move higher today although that one is somewhat suspect as far as I am concerned. Still, you can get the point – commodity prices are shooting inexorably higher as the Dollar drops further and further. While the price cappers were intent on pushing gold back away from the $990 level, they are spitting into the eye of a hurricane with the relentless rise in the entire commodity complex and the implosion in the bond market.

Over on the currency front, the only majors that were down against the greenback today were the Japanese Yen and the Swiss Franc. Both are being used by the carry trade as risk comes back with a vengeance. The Yen in particular was hit hard dropping over 150 points. The Dollar dropped below the 100 WEEK moving average at one point during today’s trading session but has managed to claw its way back to that level for now. It is so oversold that some guys are looking for a bounce although such a bounce will not last long as its technical picture is horrendous. There is a swing low on the weekly chart that was made back in December of last year that corresponds very closely to today’s session low. Should that level give way in the immediate future, the Dollar is going to drop rapidly down towards the 76 level. Below that is major, major support near 72. If that gives way, kiss the dollar goodbye and gold goodbye to the upside.

June gold has entered into its delivery period. Thus far deliveries are not all that impressive but we will continue to watch this. The action is now centered around the August contract. Open interest remains quite low (388,000) for gold to have made it to less than $10 from the $1,000 mark especially when you consider that the last time gold was up near these levels, open interest was closer to 590,000.

With the mining shares being hit once again by the same crowd and gold running into the bullion banks’ selling barrage just shy of $1,000, long side players will need to dig in to prevent the short term oriented momentum crowd from moving out and creating some selling pressure. AS long as weakness in the Dollar continues and commodity prices are rising across the board, gold will attract dip buying on any setbacks in price.

Incidentally, copper prices are on a strong upward tear. Apparently the thinking is that the economy will be markedly improved by the latter part of the year.

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini

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Posted at 10:49 PM (CST) by & filed under General Editorial.

Dear CIGAs,

They stole the jobs of millions in order to create their own trillions.

They built nothing at all, they created nothing at all, yet they have ruined it all.

They destroyed the American dream to fulfill their grotesque greed. The cost of their smiles is the tears of millions, yet they walk free of blame for their deed.

They continue boldly even today by continuing to play their deadly game. There is a divine justice that will find them. Payback to level the scales will be terrible.

They send our young to die or be mutilated in Iraq, Afghanistan and Kuwait where oil lies or a proposed pipeline plies, but to Darfur they send their regrets as they accumulate horrific karmic debt.

They finished off the American’s Dreams. They gave the power to the Asian regimes. The future of these graduates will be what China deems.

graduates

Posted at 10:38 PM (CST) by & filed under In The News.

Dear CIGAs,

Is this a nightmare or am I actually reading “BY NATIONALIZING GM”?

As the story broke a mini rally in the US dollar flopped.

U.S. Details Plan to Rescue G.M. Through Bankruptcy
Sunday, May 31, 2009 — 9:58 PM ET

WASHINGTON – President Obama will push General Motors into bankruptcy protection on Monday, making a risky bet that by temporarily nationalizing the onetime icon of American capitalism, he can save at least a diminished automaker that is competitive.

The bankruptcy, to be filed in New York, is a significant turning point for an industry that was once at the heart of the American economy. It culminates a remarkable four months of confrontation between Washington and Detroit that is expected to result in a drastic downsizing of the company.

It also places the government in uncharted territory as a business owner, as it takes a majority ownership stake in the company during its restructuring.

Reflecting the government’s extraordinary intervention in industry, aides say, Mr. Obama plans to tell the nation on Monday that he believes G.M. can be brought back from the brink of insolvency, even if the company looks almost nothing like the titan of old.

Administration officials briefed reporters on the G.M. plans Sunday night, as President Obama began to inform members of Congress. But the White House insisted that the aides who talked to reporters could not be named.

In his remarks on Monday, Mr. Obama will spell out a strategy in which a shrunken G.M. can make money even if new car sales remain at a sluggish 10 million a year in the United States and even if G.M., once the giant of the industry, drops below its current 20 percent market share in this country.

But to get there, American taxpayers will invest an additional $30 billion in the company, atop $20 billion already spent just to keep it solvent.

More…

‘Gold price to touch $1,400 in six months’
2009-05-31 22:30:00

Gold investors know all too well the psychological importance of $1,000 gold. The yellow metal’s been hovering frustratingly near that level for weeks after briefly surpassing it in February. According to John Kaiser, editor of the Kaiser Bottom-Fishing Report, “we’re getting very close.” In this exclusive interview with The Gold Report, John shares his “modest” price forecast of $1,300 – $1,400 within the next six months and presents strategies for gold companies looking to create value.

The Gold Report: John, you have said that you believe gold may go up to $1,300 to $1,400, but probably not higher. Can you give our readers an overview of how you achieved those targets?

John Kaiser: I think we’re ready for a real increase in the price of gold, which is why I am looking at more modest targets, such as $1,300 to $1,400, happening fairly quickly, probably bouncing plus or minus $200 or $300, around that level, but it’s a real price increase without a corresponding catastrophic collapse in the U.S. dollar or hyperinflation descending upon us.

TGR: What time frame are you looking at?

JK: I think we’re getting very close. We’re knocking on the door of $1,000, which is a very important psychological level. I would say in the next six months, as people realize that the banking system is still troubled and will be for a long time because an uptrend in real estate prices is not in the cards for a very long time. And, in order to make the banks solvent, the underlying collateral needs to have liquidity and a stable price.

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Jim Sinclair’s Commentary

Israel makes a major miscalculation!

Israel stages biggest-ever war drill
updated 7:37 a.m. EDT, Sun May 31, 2009

JERUSALEM (CNN) — Israel started its biggest emergency drill in the nation’s history Sunday to prepare civilians, soldiers and rescue crews for the possibility of war, the defense force said in a statement.

The five-day drill, nicknamed Turning Point 3, comes amid the nation’s rising tensions with Iran.

It will be conducted in public facilities, including schools, military bases and government offices. Students, soldiers and other civilians will practice how to gather at protected places during an emergency.

Officials said the drill will include simulated rockets, air raids and other attacks on infrastructure and essential facilities, and use of weapons on civilians.

Everyone is expected to go to a protected place at the sound of sirens, the defense force said, adding that more instructions will be broadcast on a public channel.

“It is of great importance that every civilian, institute and workplace will seriously practice in order to improve our preparedness and national resilience,” Maj. Gen. Yair Golan of the Home Front Command said in a news statement.

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Jim Sinclair’s Commentary

Just another bailout where the taxpayer is burdened beyond the ability to cope.

FDIC Fund Running Dry
By: Dirk van Dijk, CFA
May 27, 2009

We highlight JP Morgan Chase & Co., Inc. (JPM – Snapshot Report), BankUnited Financial Corp. (BKUNA – Snapshot Report), Wells Fargo & Co. (WFC – Analyst Report) and Bank of America Corp. (BAC -Snapshot Report).

As the FDIC has had to step in to take over more and more insolvent banks, the fund has dwindled to dangerously low levels. At the same time, the number of problem banks continues to grow at a rapid pace.

At the end of the first quarter there were 305 “problem institutions” with a total of $220.0 billion in assets, up from 252 institutions and $159.4 billion in assets at the end of 2008. At the end of the quarter, the Deposit insurance fund was at just $13.0 billion, or 0.27% of insured deposits, a decline of 24.7% in the quarter alone.

The first graph (from http://www.calculatedriskblog.com/) shows the steep drop in the coverage ratio. Just a year ago, the fund was equal to 1.01% of covered deposits. The current level is its lowest since the first quarter of 1993, when we were digging out from the S&L fiasco.

However, don’t worry about losing the money in your checking account if your bank goes under. Congress has already approved a $500 billion line of credit to the FDIC. Without a doubt, that line of credit is going to have to be tapped. This does emphasize the insanity of having the FDIC provide the guarantees for the PPIP [Public-Private Investment Program]. The fund simply does not have the resources available to do it. The money for the inevitable large losses that the fund will take on the program will come from that line of credit.

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Jim Sinclair’s Commentary

The Chinese use their media to speak to other governments on all kinds of matters.

This is a direct salve across the bow of Geithner’s visit to China this week.

Chinese economists deem huge holding of US bonds “risky,” split on way out
2009-05-31 15:31:57

BEIJING, May 31 (Xinhua) — On the first day of U.S. treasury secretary Timothy Geithner’s visit to China, the Beijing-based Global Times published a survey of 23 famous Chinese economists on Sunday, saying that the majority of them deemed the vast holding of U.S. bonds “risky.”

Among the 23 experts polled, 17 said they believed that U.S. equities pose great risks to China’s economy.

eithner will begin his first visit to Beijing as US treasury secretary in an attempt to assure the U.S.’ biggest creditor that its large holding of purchased US bonds is safe.

The visit also highlights Geithner’s comments made earlier this year alleging that China has manipulated its currency.

Li Wei, an expert with the Institute of Ministry of Commerce, and Tian Yun, a scholar at the China Macro Economics Institute, expressed concerns over the risks, saying that the United States may export its deepening crisis to China “by printing U.S. dollar notes uncontrollably.”

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Jim Sinclair’s Commentary

“We do not believe the sales, should they occur, will harm gold prices,” said HSBC analyst James Steel.

IMF gold sale: US Congress approval next week
Commodity Online

LONDON: The International Monetary Fund’s decisiion to sell its gold reserves could get the necessary approval from the US Congress next week.

At the G20 summit in London in April, participating countries agreed the IMF could sell 403.3 metric tons of gold as part of efforts to leverage up to $6 billion in concessional loans for low-income countries over the next few years.

In order for the sale to proceed, 85% of IMF shareholders need to approve the proposal. Since the U.S. has 17% of the votes, it has a de facto veto over the proposal, which requires Congressional approval, but IMF Managing Director Dominique Strauss-Kahn told Dow Jones Newswires this week he expects Congress will soon approve the sale.

On Friday, analysts said US Congress may approve International Monetary Fund gold sales as early as next week.

“This issue appears now fully priced into the gold market and any announcement confirming sales should not move the market – apart from perhaps a knee-jerk reaction,” said John Reade, an analyst at UBS.

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Jim Sinclair’s Commentary

Have you ever heard of a Hack License? It is not a cab medallion in New York.

Contractors Vie for Plum Work, Hacking for U.S.
By CHRISTOPHER DREW and JOHN MARKOFF
Published: May 30, 2009

MELBOURNE, Fla. — The government’s urgent push into cyberwarfare has set off a rush among the biggest military companies for billions of dollars in new defense contracts.

The exotic nature of the work, coupled with the deep recession, is enabling the companies to attract top young talent that once would have gone to Silicon Valley. And the race to develop weapons that defend against, or initiate, computer attacks has given rise to thousands of “hacker soldiers” within the Pentagon who can blend the new capabilities into the nation’s war planning.

Nearly all of the largest military companies — including Northrop Grumman, General Dynamics, Lockheed Martin and Raytheon — have major cyber contracts with the military and intelligence agencies.

The companies have been moving quickly to lock up the relatively small number of experts with the training and creativity to block the attacks and design countermeasures. They have been buying smaller firms, financing academic research and running advertisements for “cyberninjas” at a time when other industries are shedding workers.

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Jim Sinclair’s Commentary

What are these people thinking?

Bank Of America’s New Green Hotel
Posted May 28th 2009 8:02PM by Deidre Woollard

Guests visiting Bank of America’s headquarters in Charlotte, North Carolina will soon have a more luxurious place to stay. As USA Today’s Hotel CheckIn reports, the nation’s largest bank is opening up a new Ritz-Carlton hotel across the street from its corporate headquarters.

The 18-story building will have a 12,000 square-foot penthouse wellness center, a street-side BLT Steak restaurant and 147 rooms including a 2,900 square-foot Presidential Suite. It will be the first LEED-designed new hotel in Charlotte, North Carolina and is being built for LEED Gold Certification making it the first green hotel under the Ritz-Carlton umbrella. The Ritz-Carlton, Charlotte at Bank of America Center is scheduled for completion in October 2009.

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Jim Sinclair’s Commentary

1. Pakistan goes Taliban
2.Israel makes a major miscalculation.
3. Turkey is a victim.

Rebel Land: Among Turkey’s Forgotten Peoples by Christopher de Bellaigue
The Sunday Times review by Jeremy Seal

With Istanbul nominated European Capital of Culture for 2010, here’s a book that certainly rains on the Turkish parade. At once a contemporary investigation and a historical analysis, Christopher de Bellaigue’s brave and informed account of eastern Turkey’s brutalised minorities deserves a wide readership, even among those sure to find its contents unpalatable.

Ottoman cosmopolitanism largely accommodated the empire’s minorities. From the late-19th century, however, the Christian Armenians and Muslim Kurds were increasingly discomfited by rising Turkish nationalism. Accusations of genocide against the Armenians during the first world war have since been regularly levelled at the Turks, and consistently rejected by them.

De Bellaigue sets out to get his material, “gritty and unfiltered”, from the inhabitants of Varto, a benighted town near Erzurum, one that stands for “those hundreds or thousands of other small places across the rebel land, where the atrocities happened far from prying eyes”. The author brings a rare conviction to his descriptions of the town. An Alevi musician leads him across uplands deforested by the army to deny cover to Kurdish guerrillas. There are also run-ins with bureaucrats and the security forces, not least with the resentful captain of the local gendarmerie.

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Jim Sinclair’s Commentary

Expect the Pakistan government to announce total victory in Swat soon, but don’t expect either victory or sustainability.

Public support for US declining in Pakistan: Petraeus
Daily Times – Lahore,Pakistan
LAHORE: Public support for the US is declining in Pakistan due to US drone strikes, Central Command chief General David Petraeus has said. …
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Pakistan: Corpses lie exposed in retaken Swat town
The Associated Press
MINGORA, Pakistan (AP) — Corpses lay exposed in the Swat Valley’s main town on Sunday, and residents rushed to mostly empty markets in search of food a day …
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Pakistan battles Taliban; Swat offensive “near end”
Reuters – USA
The United States and the Afghan government have long been pressingPakistan to root militants out of South Waziristan and other enclaves on the Afghan …
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Pakistan gains in Swat as trouble flares elsewhere
KGAN – Cedar Rapids,IA,USA
DERA ISMAIL KHAN, Pakistan (AP) — Fighting in a northwest tribal region ofPakistan could raise the odds that the army will extend an offensive to …
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More battles in Pakistan…Palestinians clash…magiclakers final …
KXMC – Minot,ND,USA
AP DERA ISMAIL KHAN, Pakistan (AP) There’s more fighting in a northwest tribal region of Pakistan. Intelligence officials say Taliban fighters have fought a …
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Jim Sinclair’s Commentary

There will be many varied results as part of the Surge by Pakistan in Swat.

Al-Qaeda now recruiting ‘ready made’ Taliban terrorists from Pak to strike UK, other countries
May 30th, 2009

LONDON – The extent to which Al-Qaeda has dangerously penetrated into Britain can be gauged from the fact that it no longer relies on sending British-born men to Pakistan for terror training, instead it is now recruiting ‘ready made’ terrorists from among the Taliban based in Pakistan.

British investigators, who have been quizzing the 10 men arrested in the North West, believe that Al Qaeda has developed links with the Taliban which provide it trained militants who can carry out terror strikes at significant locations, The Telegraph reports.

According to the newpaper, a terrorist informant has told prosecutors that he was trained by the top Taliban commander in Pakistan, Baitullah Mehsud .

He also revealed that he was planning a series of suicide attacks in Britain, and other European countries with 11 other men.

It’s worth mentioning here that British security services had earlier disclosed that a terrorist cell was sent to Manchester from the Taliban heartland in Pakistan’s lawless tribal areas.

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Jim Sinclair’s Commentary

The following link leads to a letter on the investigation results of the Bank of America and Merrill Lynch merger.

Click here to view the PDF file…

Jim Sinclair’s Commentary

This week Secretary Geithner will most politely get an ear full of the truth. You cannot guarantee dollars (US Treasuries) with dollars.

U.S. Treasury Secretary to visit China (05/26/09)

BEIJING, May 26 (Xinhua) — U.S. Treasury Secretary Timothy Geithner will visit China from May 31 to June 2, Foreign Ministry spokesman Ma Zhaoxu told a regular press briefing Tuesday.

As a special envoy of U.S. President Barack Obama, Geithner would visit China at the invitation of Chinese Vice Premier Wang Qishan, who is a special representative of Chinese President Hu Jintao, Ma added.

“The two sides will exchange views on issues of common concern,” Ma said, adding that those issues included the international financial situation, bilateral cooperation in coping with the financial crisis and preparations for the first round of the China-U.S. Strategic and Economic Dialogue.

The new mechanism was upgraded from the Strategic Dialogue and biennial Strategic Economic Dialogue (SED), which were initiated by the two heads of state in 2005 and 2006, respectively.

The Strategic Dialogue, co-chaired by a Chinese state councilor and a U.S. deputy Secretary of State, focused on political and strategic issues in the development of bilateral ties.

The first round of the China-U.S. Strategic and Economic Dialogue will concentrate on economic and financial topics including energy, environmental protection, intellectual property rights and services.

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Posted at 6:08 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,

I remember about four years ago you predicted that starting with the development of Kabanga, Barrick’s primary source of revenues would eventually come from its nickel properties as opposed to gold. I can’t remember whether you said you made this prediction to Barrick’s then-President or whether you made it in the abstract. Well, too bad. They didn’t listen to you about the disastrous short of gold derivatives either, so they’ve been forced to sell their interest in Kabanga and they’ll never get a chance to find out. Lots of people (not the least of which, several foreign wealth funds that invested in US banks in 2007-2008) could have saved themselves billions of dollars if they just took the advice you offered for free. It’s quite an amazing study in human ego why they were incapable of doing so.

Best wishes,
CIGA Richard B.

Dear Richard,

I was told by a major mining trade publication to take my advertising away as they would no longer run it.

Apparently I really pissed of some major producer. I think I know exactly who that was.

When I left Kabanga Nickel that picture was running 2.8% nickel and the cobalt crystals could be seen in the core with the naked eye. The metallurgy was simple and the cobalt so easy that you would say it fell out. The resource appeared enormous. If there was any problem then it was infrastructure, but that is not so now.

I went to Barrick to buy Kabanga from them. Oliphant asked me if he should sell it to me. What can you answer? I am there as a buyer My answer was of course I would not.

Regards,
Jim

Jim,

I am trying to understand what the most likely events that could trigger hyperinflation in the US (or Europe). From your December 12, 2008 post I thought that a shortage of essential goods (oil, food…) may be one of those.

Sincerely,
CIGA Christopher

Dear Christopher,

The US dollar collapse in the marketplace late October, early November of 2009 will trigger hyperinflation.

Scarcity of key goods occurs because of a breakdown in financial settlements for shipping and distribution.

Jim

 

Jim,

I could have missed it, but I have not been aware of your version of the USA devaluing the US$.

Do you have an opinion ???

CIGA Wally

Wally,

In today’s world currencies trade in a floating system.

The dollar is upward valued and devalued daily. Therefore there will never be any official devaluation to the US dollar in the present system.

The US dollar will trade under .7200 on the USDX prior to Christmas 2009.

Jim

Posted at 7:18 PM (CST) by & filed under In The News.

What does a large new short do when DIRTY TRICKS FAIL.

1. Sell the stock as gold rises to unsettle the weaker hands
2. Work the charts, certainly at a gap close, that coincides with the most meaningful downtrend to work the day and inter-day traders.

Jim Sinclair’s Commentary

In this very interesting article three major points are made:

1. We have reviewed this which is the most important currency development in 136 years.

"In reaction to the Fed’s QE scheme, Brazil and China are working towards bypassing the US-dollar in bi-lateral trade transactions, challenging the status of the greenback as the world’s leading international currency. “We don’t need dollars,” said Brazilian President Luiz Inacio Lula da Silva. “It’s crazy that the dollar is the reference, and that you give a single country the power to print that currency.”

2. Take the word "Iran" out and consider the domino impact on markets that will be unleashed by the geopolitical Andromeda strain – Pakistan goes Taliban.

"For Iran’s neighbors in the Middle East, the atomic fireworks display in North Korea proves the West cannot afford to wait much longer, until intelligence agencies confirms Iran’s nuclear capability, because Tehran can surprise the world with an underground atomic test of its own. When that day arrives, crude oil futures could soar above $100 per barrel, lifting grains and precious metals higher for the ride."

3. QE has busted the bond market and the bust is only starting now. A break of the 30 year below 112 – 113 (which is going to happen) will result in a bear market in US Treasuries that will last at least a decade and announce the impending hyperinflation.

"However, what would happen if the QE addiction leads to a collapse in G-7 bond prices? “The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.” Ernest Hemingway, “Notes on the Next War: A Serious Topical Letter”, 1935."

Can North Korean Nukes Rattle Global Markets?
Posted Wednesday, 27 May 2009
By Gary Dorsch, Editor, Global Money Trends

News that North Korea’s mercurial leader Kim Jong Il authorized the detonation of a nuclear bomb on May 25th, comparable to those that obliterated Hiroshima and Nagasaki, barely caused a ripple in the global financial markets. Japanese and South Korean stocks initially fell in a knee-jerk reaction, but soon recouped most of their losses, as traders shrugged off the nuclear fallout, – figuring it was just a harmless display of Kim Jong Il’s temper tantrums that erupts once every few years.

When foreign markets failed to take Pyongyang seriously, Kim Jong Il upped the ante by firing the Musudan-Ri missile, on which N-Korea could ultimately place a nuclear warhead, with a range of 2,500-miles. Pyongyang then fired three shorter-range missiles into the Sea of Japan. But global stock markets are so intoxicated with super-cheap money injected by the G-20 central banks each day, that even nuclear bomb blasts didn’t rattle the post March 10th“green-shoots” rally.

Pyongyang vowed on May 27th, to attack South Korea if its ships participate in a US-led effort to interdict vessels carrying missiles or weapons of mass destruction. Pyongyang also declared that the truce that ended the Korean War was no longer valid. “Those who provoke North Korea will not be able to escape its unimaginable and merciless punishment,” the North’s official news agency said. Calling South Korea’s government a “group of traitors,” “our revolutionary forces will consider the interdiction of ships as a declaration of war against us.”

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Jim Sinclair’s Commentary

Plausible denial when it all goes wrong.

Fed: We Were Never Trying To Set Credit Market Rates
Joe Weisenthal – May. 29, 2009, 7:40 AM

The Fed has finally responded to the soaring mortgage rates, and the apparent failure of quantitative easing.

Their spin — courtesy of CNBC’s Steve Liesman (natch) — is that the Fed was never trying to force down mortgage rates or "set" rates. Rather, by stepping in and purchasing bonds, the Fed is merely trying to "support" the credit markets.

Frankly, we’re not sure that there’s a difference between the two statements. "Supporting" credit markets is another way of making sure that interest rates aren’t getting out of hand. And to the extent that the credit markets need that Fed support is not very promising.

Either way it seems clear. The Fed believes that depressing rates is how they’ll stabilize the housing market and the sudden spike up torpedoes that goal.

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Jim Sinclair’s Commentary

Please take note of the discussion of Taliban tactics and the most probable performance of Pakistan forces.

Pakistan Civil War News Updates — May 29, 2009
FRIDAY, MAY 29, 2009

PD*29125406

Taliban In Swat Slip Away, Live to Fight Another Day — Captain’s Quarters

One month ago at the beginning of the Pakistan offensive against the Taliban in the North West Frontier Province, the Pakistan Army claimed that the offensive would take approximately one week. We responded that the Pakistan Army, regardless of whether they had the will to conduct counterinsurgency operations, didn’t understand how to, adding that:

The Taliban would simply melt away, wait for the Pakistan Army to leave, and then re-enter the area and kill anyone who cooperated with the Army. Or if they stand and fight, the history of the Pakistan Army indicates that they will simply pull back and sign a new peace deal.

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Jim Sinclair’s Commentary

When Pandora’s Box of Quantitative Easing was opened, it could not and will not be closed!

Bond markets defy Fed as Treasury yields spike
By Ambrose Evans-Pritchard
Last Updated: 5:51AM BST 29 May 2009

The US Federal Reserve may soon be forced to launch fresh blitz of quantitative easing whatever the consequences for the US dollar, or risk seeing economic recovery snuffed out by the latest surge in long-term borrowing costs.

Yields on 10-year Treasury bonds have risen relentlessly since March when the Fed first announced its plan to buy $300bn (£188bn) of US government debt directly, a move that briefly forced rates down to nearly 2.5pc, a level thought to be the Fed’s implicit target.

Yields have jumped to 3.69pc – after spiking as high as 3.74pc on Wednesday – pushing up the standard 30-year mortgage loan to 5.08pc and lifting the borrowing cost for corporations.

"The Fed is going to have to consider doubling its purchases of Treasuries," said Ashraf Laidi, from CMC Capital Markets. "We could be nearing the end-game for the US dollar but the Fed has little choice at this point. We’re in a vicious circle where any policy aimed at supporting the US economy must be at the expense of the dollar."

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Jim Sinclair’s Commentary

The saying is "Records are made to be broken." This one will be.

Troubled Bank Loans Hit a Record High
May 30, 2009
By FLOYD NORRIS

OVERALL loan quality at American banks is the worst in at least a quarter century, and the quality of loans is deteriorating at the fastest pace ever, according to statistics released this week by the Federal Deposit Insurance Corporation.

The report highlighted that even as the government and major banks have scrambled to deal with the impaired securities the banks own, the institutions have been plagued by an unprecedented volume of old-fashioned loans going bad.

Of the entire book of loans and leases at all banks — totaling $7.7 trillion at the end of March — 7.75 percent were showing some sign of distress, the F.D.I.C. reported. That was up from 6.9 percent at the end of 2008 and from 4.1 percent a year earlier. It also exceeded the previous high of 7.26 percent set in 1990 and 1991, during the last crisis in American banking.

The F.D.I.C. has been collecting the figures since 1984.

Virtually the only encouraging news in the report was that the banks’ loan portfolio might be worsening more slowly than it was. While the increase of 3.65 percentage points in a year is the highest ever, the quarterly rise was smaller than in the fourth quarter of last year.

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