Three weeks to go:

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

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

Then what? A bailout or no bailout?

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

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

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

Jim Sinclair’s Commentary

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

Here is my answer and promise to you:

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

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

Jim Sinclair’s Commentary

From the article:

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

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

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

Where’s The Gold?

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

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

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

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

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

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

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CIGA Eric’s Commentary

Spin vs. Reality: Management of Perception Economics

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

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

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

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

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

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

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

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

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

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Jim Sinclair’s Commentary

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

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

Jim Sinclair’s Commentary

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

Fading of the Dollar’s Dominance

The days of calling the dollar almighty may be numbered.

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

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

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

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

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

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Jim Sinclair’s Commentary

It was only a matter of time.

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

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

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

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

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Jim Sinclair’s Commentary

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

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

Jim Sinclair’s Commentary

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

Jim Sinclair’s Commentary

COT: Fight it they will. Fail they will.

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

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

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

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

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

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

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

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

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Jim Sinclair’s Commentary

So are US banks after the false FASB first quarter.

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

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

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

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

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

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

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Jim Sinclair’s Commentary

Naughty CITI.

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

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

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

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

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

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

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

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Jim Sinclair’s Commentary

MOPE (management of perceptions economics) strikes again!

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

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

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

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

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

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

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Jim Sinclair’s Commentary

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

I am surprised by the LA times.

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

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

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

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

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

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

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